Dollar General (DG) is one of the best-positioned retailers heading into the year, with potential upside driven by improved execution, new initiatives, margin expansion, and strong earnings growth, UBS (UBS) said Thursday.

The investment firm in a note said it remains bullish on the stock and expects the retailer's fiscal 2026 guidance to indicate earnings of around $7 or more at the midpoint.

The company has enhanced its execution through 2025, but UBS sees further room for progress, with service levels still behind pre-COVID levels.

Analysts at UBS project the retailer to end the year with an operating margin of around 5%, below its long-term outlook of 6% to 7%. Shrink improvement could exceed expectations, while additional margin drivers include less product damages, retail media and non-consumables initiatives.

The brokerage expects Dollar General to clock in another earnings beat in the fiscal fourth quarter, with comparable sales of around 3.5% as compared with consensus estimate of 2.9%.

UBS kept its buy rating and raised its price target of $168 from $143.

Price: 147.18, Change: +2.28, Percent Change: +1.57