Dollar General is set to go public next week, but the discount retailer could see mixed results in its closely watched initial public offering as its private equity backers have valued the company richly.

The $750 million offering of the retailer controlled by private equity firm Kohlberg Kravis Roberts & Co is expected to price on Thursday and begin trading on the New York Stock Exchange next Friday.

Dollar General, which has 8,700 stores across the United States, plans to sell 34.1 million shares for between $21 and $23 a share. At those prices, Dollar General would be valuing itself more richly than competitors like Target Corp, Wal-Mart and Dollar Tree .

The valuation doesn't look great, said Nick Einhorn, research analyst with Renaissance Capital in Connecticut. I wouldn't expect it to be a home run.

It wouldn't shock me if it ended up being similar to a Dole Food which ended up trading down in its first day of trading last month, he said.

At the midpoint of its pricing range, Dollar General would be valued at roughly 19.4 times 2009 earnings, according to IPOdesktop.com. That compares to valuations of 14.8 times earnings at Wal-Mart and 18.3 times earnings at both Target and Dollar Tree.

Still, Dollar General has done a good job improving its earnings potential in recent years, improving store layouts and tweaking the discounter's brand, analysts said.

The stores look better. They're operating them better. It also doesn't hurt to be a dollar store in the worst recession we've had since the '30s, said Telsey Advisory Group analyst Joseph Feldman, who believes the company has earned the higer valuation.

It's above its peers, but it's a more nimble company. It's done a little bit better on a consistent basis during the recession, said Francis Gaskins, president of IPOdesktop.com.

It'll probably trade within the range of $21 to $23 a share after debuting on Friday, he said.

PE WORRIES

Dollar General was acquired by KKR in 2007. Private equity companies have been looking to take advantage of the resurgent stock market in order to unload portfolio companies.

There have been some notable successes, but also some high-profile disappointments, like Fortress Investment Group's RailAmerica. Analysts said that the heavy debt-load of some of these companies has hurt their performance.

Another possible problem for the IPO is a $239.3 million special dividend it paid to its existing owners -- which also include underwriters Citigroup and Goldman Sachs -- in September.

Investors are always a little wary of things like that, said Renaissance Capital's Einhorn. You want to feel that an IPO is not just being done to line the sponsor's pockets. That could be a source of resistance.

Dollar General is one of two IPOs scheduled for next week, with the other being specialty apparel retailer rue21.

Retailers have shied away from IPOs in recent years. Vitamin Shop Inc had its IPO in late October, becoming the first brick-and-mortar retailer to go public after 2 years on the sidelines.

That company's shares priced at $17, above their initial range, and have traded up more than 14 percent since the pricing.

(Reporting by Michael Erman; editing by Carol Bishopric)

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