Dollar General (DG): More Value on the Shelf, Less in the Bonds

Research evidence excerpt

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M

Foundation

August 17, 2026 03:19 PM GMT

Retail Credit Research | North America

Morgan Stanley & Co. LLC

Jenna L Giannelli

Credit Analyst

Dollar General (DG): More

Value on the Shelf, Less in the

Bonds

We initiate credit coverage on Dollar General (DG) with a

neutral fundamental view and see valuation as fair. We have no

active DG trade and prefer DLTR given stronger ratings, lower

leverage, and higher margins.

Roopi Bhangu

Credit Analyst

Exhibit 1 : Fundamental & valuation view

Company

DG

Fundamental View

Neutral

Valuation View

Fair

Trade Recommendation

None, prefer DLTR

Source: Morgan Stanley Research

Key Takeaways

We model FY26E EBITDA +13% to $3.6bn, gross leverage at 1.3x and FCF / debt

above 30%, supporting further balance-sheet repair.

We see a path toward management’s 6–7% operating-margin target through

lower shrink and damages, better mix, and DG Media Network, though SNAP

pressure and higher fuel costs remain risks to its core consumer.

Our neutral fundamental view balances improving execution, strong FCF and

lower leverage against low-income consumer pressure, cost volatility and

margins still below prior peaks.

We view downgrade risk as low but non-trivial over 12–24 months, given strong

FCF and no buybacks assumed in FY26 guidance, though Moody’s Baa3 remains a

key risk. Sustained debt / EBITDA above 3.75x or EBIT / interest below 3.0x could

trigger a HY downgrade.

DG screens fair, and we have no active trade. We prefer DLTR given stronger

rating cushion, lower leverage, and higher margins.

The DG credit story is increasingly about sustaining margin recovery and balancesheet repair. Following the 2022–24 investment cycle, FCF has recovered, leverage

has declined and traffic has improved, while management is focused on shrink,

remodels, mix and productivity to reach its 6–7% long-term margin target. We view

the setup as balanced: scale, rural proximity, and strong FCF provide support, but

low-income consumer pressure, cost inflation, and still-subpeak margins remain key

risks. Moody’s Baa3 rating also limits cushion, reinforcing the importance of

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