Stock (Symbol) |
Dollar General (DG) |
Stock Price |
$70 |
Sector |
| Retail & Travel |
Data is as of |
| October 10, 2016 |
Expected to Report |
| Dec 1 – 5 |
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 |
 Dollar General (DG) got slammed this qtr after the company guided profit estimates lower as Walmart’s new lower prices were more than 10% lower than Dollar Generals in some markets. Last qtr when I did my DG research report the stock was at an All-Time high of $95 and it since has slid to $70. Dollar General is thriving by selling more perishables and beauty products. Since 2008 Dollar General increased the cooler count 50% as its remodeled stores, and now it’s adding 23,000 coolers across another 9000 stores. But last qrt perishables saw price deflation, with retail prices for milk down 8%, eggs down over 50% and retail price reductions of 10% on 450 of the most popular items. Still, consumables continue to do well, and a basket with food in it is 50% higher than one without. Total store count went from 11,800 to 12,500 last year, and the company adding 900 new stores this year and 1000 next year. DG’s also purchasing 42 closed Walmart Express stores and will have these open by the end of October. Management takes care of its shareholders with big stock buybacks in addition to dividends and has a long-term goal of 11% to 17% total annual shareholder return through profit growth and dividends. Now that DG has lowered estimates due to lower prices, profit growth is expected to average just 9% the next 4 qtrs. In the end, Dollar General’s P/E has fallen from 21 to 16 and is now a solid value, but with slower growth in the interim. And now Walmart is expecting to focus on e-commerce and slow its store openings, which is good for DG. |
One Year Chart |
 Last qtr DG reported 14% profit growth on 6% sales growth. Same store sales increased just 1% last qtr, down from 2% the prior 3 qtrs. The company had beaten the street by 4 cents and 8 cents the prior 2 qtrs but missed by 1 cent last qtr. 2016 profit estimates dropped from $4.64 to $4.49 and 2017’s from $5.18 to $4.89. The bad news didn’t affect the Est LTG which at 14% is the same as it was last qtr. The 2QtrsOutEst was negatively impacted by 3-4 cents by the Walmart Express purchase. Estimates for the next 4 qtrs are 6%, 12%, 6% and 10%. |
Fair Value |
 Dollar General was a little too high last qtr anyway when the P/E was 21. Now it’s back down to a good buy point. My Fair Value is 18x earnings, which equates to $88 for 2017 and is 26% higher than the recent quote. Plus you get a 1% dividend yield while you wait. |
Bottom Line |
 Walmart’s lower prices are putting a hurting on Dollar General as well as the rest of the dollar stores. But in the end people looking to make a quick stop are still going to stop into a Dollar General. The company might have slower growth in future quarters, but the combination of big stock buybacks, new stores, remodeling old ones, and a dividend is a formula for success. This stock is a solid buy-and-hold investment for conservative accounts and growth accounts with a 1-year plus time horizon. DG ranks 23rd in the Growth Portfolio Power Rankings and 8th in the Conservative Portfolio Power Rankings. |
Power Rankings |
Growth Stock Portfolio
23 of 37Aggressive Growth Portfolio N/AConservative Stock Portfolio 8 of 35 |
