Stock (Symbol) |
Dollar General (DG) |
Stock Price |
$71 |
Sector |
| Retail & Travel |
Data is as of |
| December 10, 2015 |
Expected to Report |
| Mar 10 – Mar 14 |
Company Description |
Dollar General Corporation is the discount retailer in the United States. The Company 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
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Sharek’s Take |
 Dollar General (DG) is one the right track. Last qtr DG grew profits 11% through a combination of 7% sales growth (2% of which was same store sales growth which is very profitable) and share buybacks. Management has bought back $1 billion in stock this year — a big number as the company’s market cap is $20 billion. So perhaps by the end of the year DG buys back $1.35 billion, which would be 7% of shares. If you can grow profits 7% naturally, then decrease the share count 7%, you can grow profits 14% per year. But management is doing more than just that. DG is profitable. Gross profit as a percentage of sales was 30% last qtr, and the funds are being used to open new stores and remodel old ones, getting more coolers in the stores (cooler count is up 50% since 2008). Food items are key drivers of growth as a basket with food in it is 50% higher than one without. Last year the company had 11,800 stores, plans to open 730 more this year and remodel 875 more, with 900 new stores on deck for next year. If that wasn’t enough, DG also has a yield of 1.25%. Dollar General is doing things right, and the price is right too. With an estimated long-term growth rate of 14% and a 1% yield DG has an anticipated total annual return of 15% per year. At just 16x 2016 earnings, the stock is a value just like its items are. Also, 100% of stores are in the US, so F/X isn’t killing profitability.
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One Year Chart |
 Like the stock market this year, DG has had a volatile 2015 while not going anywhere. Analysts wanted 4% same store sales growth, are only getting 2%, and thus soured on DG during the Summer. Estimates show +8% profit growth next qtr, but after that things look to get back on track with +14%, +15%, and +15% growth estimated the following qtrs. The company has been either meeting estimates or beating by a penny — or three. Annual Profit Estimates have stayed steady the last 4 qtrs, with a slight downward bias. |
Fair Value |
 KKR took Dollar General private in 2007, then DG had another IPO in 2009. Since then the stock has consistently sold for around 16x earnings, which is where it stands today. To me, the consistency and certainty of Dollar General’s growth should result in a higher P/E ratio — especially considering many multinationals can’t sustain strong profit growth due to the strong dollar. This looks to be a solid selection for mid-teens growth over the long-term. |
Bottom Line |
 Dollar General has the formula for success. It’s stores are profitable and savvy management is using this to spiff up its stores, open new ones, buy back stock, and pay a dividend. With 14% estimates profit growth and a 1% yield the anticipated total annual return is 15% per year. I can’t believe the stock sells for just 16x earnings.
DG ranks 7th of 32 stocks in the Conservative Growth Portfolio Power Rankings and I will add it to the Growth Portfolio today where it will rank 29th of 38 stocks. |
Power Rankings |
Growth Stock Portfolio
29 of 38Aggressive Growth Portfolio N/AConservative Stock Portfolio 7 of 32 |
