A number of analysts have tweaked their forecast for Dollar General after the company reported strong fourth-quarter numbers last week. At MKM Partners, Patrick McKeever has hiked his recommendation to 'buy' from 'hold,' while Guggenheim Securities researcher John Heinbockel has reiterated his 'buy' rating and lifted his price target to $54 from $46. One of his main reasons is that Dollar General and other deep-discount retailers — some of the strongest performers in the market in recent years — are still cheap relative to their grocery sector peers, "especially since we believe saturation will not be reached for another 7-8 years."
Separately, S&P analysts also have signaled they are closer to upgrading  Dollar General's debt rating, a longtime goal of CFO David Tehle. They have placed the company on watch with positive implications.
[G]iven the improvement in credit protection measures we expect, we believe credit protection measures could improve to levels in line with that of an "intermediate" financial profile. In our base case, we forecast total debt to EBITDA to decline toward the low-2.0x and EBITDA interest coverage to increase to over 6x in 2012, mainly through EBITDA growth.