Stock (Symbol) |
Dollar General (DG) |
Stock Price |
$84 |
Sector |
| Retail & Travel |
Data is as of |
| October 22, 2017 |
Expected to Report |
| Nov 29 |
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) has broken out of a year-long base where the stock was stuck between $70 and $80. Now around $84, I wouldn’t chase DG higher. There reason is profits have grown 0% and 2% the last 2 qtrs and Estimates are for 4% and -3% growth the next 2 qtrs. With a P/E of 19, I feel the good news is priced into the stock, and I think the shares could be this same price a year from now. It’s been a tough 18 months for Dollar General. The problems started in Summer 2016 when management cut estimates. Since then sales have sagged and profit growth has been hard to come by. That stinks because this was a real good stock. Management grows the store count, renovates existing locations to make them new and more efficient (like adding coolers to sell more frozen foods), and 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 2 qtrs ago. I’m a believer in the dollar store business, but same store sales industrywide are slow as people buy things and have them delivered online. Also, there’s deflation in food prices, and these dollar store chains have to keep cutting prices because Walmart does. With an Est. LTG of only 8% a year and a 1% yield, this stock doesn’t have the 10% estimated total return I prefer for the Conservative Growth Portfolio. Additionally, the stock isn’t safe as there are industry concerns. And thirdly the recent spike in the shares has moved the P/E to 19 which is higher than my Fair Value of 17. Thus I will take DG off my coverage this qtr. |
One Year Chart |
 Nice breakout past $80. Then the stock moved higher, which is a great sign. Still, there’s a lot of red here. Last qtr Dollar General delivered 2% profit growth and beat the 1% estimate. Sales grew a respectable 7% with 1% same store sales growth (which is poor). There’s a brighter outlook on the horizon as qtrly profit Estimates are 4%, -3%, 13% and 12%. So double-digit profit growth is expected to return, but I doubt it. |
Fair Value |
 With profits slumping and competition fierce in retail, my Fair Value is a P/E of 17. That’s a price of $77 this year and $84 next year. But the stock’s $84 now. |
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. Unfortunately there are questions in regards to the industry’s opportunity going forward as people will have more-and-more delivered to their home. With a high valuation, an estimated total return of less than 10% a year, this stock doesn’t appeal to me right now. Although I’m a big fan of the operation and of management, I will take DG off my coverage to focus on stocks with more upside potential. |
Power Rankings |
Growth Stock Portfolio
N/AAggressive Growth Portfolio N/AConservative Stock Portfolio N/A |
