Stock (Symbol) |
Dollar General (DG) |
Stock Price |
$84 |
Sector |
| Retail & Travel |
Data is as of |
| March 21, 2016 |
Expected to Report |
| May 31 – Jun 6 |
Company Description |
 Dollar 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 |
 Investors were impressed with Dollar General’s (DG) qrtly results and sent the stock to a new All-Time high. For the 2nd consecutive qtr DG had profit growth of 11% on a 7% gain in sales, with 2% same store sales growth. Departments that did well were candy, snacks, perishables, cigarettes and food. Food items are key drivers of growth as a basket with food in it is 50% higher than one without, thus the company spends big to remodel stores and increase cooler count, which is up 50% since 2008. Dollar General went from 11,800 stores last year to 12,500 this year. It plans to open 900 new stores and remodel 875 in fiscal 2016. Management’s as sound as they come, and has a long-term goal of 11% to 17% total annual shareholder return through profit growth and dividend yield. DG spent $1.3 billion on share buybacks last year, compared to a market cap of $24 billion, and that’s around 5% of shares. The company just raised its dividend 14% and investors now get $1 a year. Analysts estimate DG will grow 14% long-term, and with the 1% dividend that’s a 15% estimated total annual return. But the stock sells for 18x earnings now, and I only see 3% upside to my 2016 Fair Value. Still, modest store growth, decent same store sales (helped by remodeling) and share buybacks could keep DG growing at a mid-teens rate. 100% of stores are in the US, so there’s no foreign exchange issue and lower gas prices also help profit margins. |
One Year Chart |
 This stock popped after the company announced earnings of $1.30 and beat the street by 4 cents. I don’t see what the big deal is. Yes DG is executing well, but profit growth of 11% on 7% sales growth isn’t that great. But investors are impressed with steady growth right now, and are pushing stocks that offer steady double-digit growth higher. Estimates for profit growth for the next 4 qtrs are: 13%, 14%, 14% and 18%. Also note DG has increased profits each year since 2009. |
Fair Value |
 KKR took Dollar General private in 2007, then DG had another IPO in 2009. Since then the stock profits have grown steadily each year. In today’s market growth is hard to come by as the strong dollar has hurt many multinationals. So DG is attracting many eyes. My Fair Value is 19x earnings which is $87 this year and $97 next year. |
Bottom Line |
 Dollar General has a great formula for success. It opens stores, remodels old ones, buys back stock and pays a dividend. These shares should appeal to many investors. The only negative is the stock was cheaper last qtr when it sold for 16x earnings. Still, both analysts and management feel DG should be able to grow at a mid-teens rate long-term, and this stock is a solid buy-and-hold investment. DG ranks 20th in the Growth Portfolio Power Rankings and 6th in the Conservative Portfolio Power Rankings. |
Power Rankings |
Growth Stock Portfolio
20 of 33Aggressive Growth Portfolio N/AConservative Stock Portfolio 6 of 34 |
