fbpx

Dollar General is More A Value Stock then Growth Stock

Stock (Symbol)

Dollar General (DG)

Stock Price

$69

Sector
Retail & Travel
Data is as of
April 13, 2017
Expected to Report
May 24
Company Description
dollargeneral_forreuseDollar General Corporation offers a selection of merchandise, including consumables, seasonal, home products and apparel. Consumables category includes paper and cleaning products; packaged food; perishables; snacks; health and beauty; pet and tobacco products. Seasonal products include decorations, toys, batteries, small electronics, greeting cards, stationery, prepaid phones and accessories, gardening supplies, hardware, automotive and home office supplies. Home products includes kitchen supplies, cookware, small appliances, light bulbs, storage containers, frames, candles, craft supplies and kitchen, bed and bath soft goods. Apparel includes casual everyday apparel for infants, toddlers, girls, boys, women and men, as well as socks, underwear, disposable diapers, shoes and accessories. Its merchandise includes national brands and private brands selections. It operates approximately 11,879 stores located in over 43 states. Source: Thomson Financial
Sharek’s Take
David SharekDollar General (DG) is more of a value stock than a growth stock now. DG had grown profits 13% a year in each of the last two years and sold for a median P/E of 18x earnings. But when managment cut guidance unexpectedly last Summer, the stock tanked and never recovered. At the time 2017 estimates fell from $5.18 to $4.89. Since then the 2017 figure has continued to fall — to $4.46 now. What’s worse is annual profits are now expected to be flat for the year. Still, this is a solid, well-run company. Management returns money to shareholders via acquisitions, dividends and big stock buybacks. Total store count went from 11,800 to 12,500 last year, and the company plans on adding 900 new stores this year and 1000 next year. DG’s also purchased 42 Walmart Express stores which opened as Dollar Generals this qtr. Last year, management had a long-term goal of 11% to 17% total annual shareholder return through profit growth and dividends, but recently analysts have taken their Est. LTG down from 14% a year to 7%. I think that’s too low, but it is what it is. Fortunately, the stock’s P/E has gotten down to 15 which makes DG a good value, and ripe for huge upside if profit growth returns to the teens. But with flat profit growth expected for the year, DG is more of a value stock than a growth stock right now. I will sell the stock from the Growth Portfolio, but hold it in the Conservative Portfolio.
One Year Chart
Last qtr DG posted profit growth of 15% which beat estimates of 9% growth, as sales rose 5%. Same store sales increased just 1% and that’s not going to get this stock moving higher. Qtrly profit Estimates for future qtrs fell big time. Now just -3%, 1%, 4% and -3% is expected the next 4 qtrs. The Est. LTG is in the dumpster too.
Fair Value
Dollar General has been a solid winner profit-wise the past 8 years. But the streak of record profit growth each year might end this year. The nice thing is DG now sells for just 15x earnings, which is a good deal. Still, the stock doesn’t have a lot of upside to its Fair Value.   
Bottom Line
Dollar General is experiencing a slow-down in growth, but the ten-year chart shows  the stock is still in its long-term uptrend. Right now DG is a value stock, and I feel it will provide good returns over the long-term. DG has four great characteristics of a core holding. It grows via expansion, makes acquisitions, buys back stock, and pays a dividend. But investors looking for growth might want to step-aside and put their money elsewhere. DG will be sold from the Growth Portfolio, but I will stick with it in the Conservative Portfolio where it will rank 25th of 31 stocks in the Power Rankings.
Power Rankings
Growth Stock Portfolio

N/A

Aggressive Growth Portfolio

N/A

Conservative Stock Portfolio

25 of 31

Not a member? Sign up here for $25 a month.