Dollar General (DG) stock still has room to grow further despite recent gains, UBS said in a note Monday.

"DG is on a steady path of improvement," the report said. "It has a long runway to realize the benefits of its recent execution improvements and new initiatives."

The note also said DG is one of the best positioned retailers to withstand the direct and indirect impacts of tariffs, expecting the dynamic to accelerate its trade-down tailwinds.

On Q2 results due Aug. 28, UBS analysts expect DG to deliver a slight beat and to raise the mid-point of its outlook modestly.

Although valuation is near its five-year average, further stock gains may come from an upward earnings revision cycle, they said. UBS kept its buy rating and $128 price target.

Price: 113.22, Change: +0.45, Percent Change: +0.40