Dollar General fights back from earnings tumble as bulls latch on to 2023 potential

Dollar General Corporation (NYSE:DG) is slowly clawing its way back after a post-earnings tumble last week when the retailer set profit guidance below expectations.

Morgan Stanley is one of the bullish-leaning firms defending the stock on Monday. Analyst Simeon Gutman and team said they were caught off guard by the DG report and did not anticipate such a confluence of headwinds to impact the business at once. However, the firm is not expecting a negative revision cycle to start.

Crucially, comparable sales growth is forecast to remain in the 6% to 8% range through Q2 of 2023 given the cadence of one-year and multi-year compares, annualizing inflation benefits, and continued tradedown from consumers. “This level of top-line consistency in a tough/unpredictable demand backdrop stands out in our view,” reads the Morgan Stanley update.

Looking ahead, healthy double-digit EPS growth is expected to resume in 2023 and the stock’s post earnings decline is said to appropriately discount the reduced 2023 outlook in MS’ view.

DG is called a defensive bellwether in a market backdrop that should continue to favor defensive names at least through the first half of 2023.

Morgan Stanley kept an Overweight rating on Dollar General (DG) while clipping the price target to $260 from $270.

Shares of Dollar General (DG) were up 0.48% at 3:35 p.m. on Monday and were on track for a second consecutive up day after the earnings day collapse. The stock has recovered more than two-thirds of its share price drop from right after the earnings report hit.

Seeking Alpha author Bela Lakos also defended Dollar General (DG) after the share price drop. “Net sales growth, combined with earnings growth, is signaling that the demand for Dollar General Corporation’s products has remained strong, while the company has managed to control costs effectively,” reads the bullish appraisal on the retail stock.