Dollar General (DG) lowered sales and earnings estimates last quarter, partially because of harsh winter weather. Management said sales should rise 7%-8% this quarter, vs. views of 10% growth. 2014 estimates got cut from $3.74 to $3.52. That’s a big drop.
DG is a good company, and a solid stock for conservative investors. It’s revamping many of its stores and adding coolers to offer more refrigerated and frozen foods. Management seems to be doing an excellent job running the company, it’s just that dollar stores in general are going through a period of weak sales. Let’s look at the data:
One Year Chart
4% profit growth last quarter and estimates show 3% and 6% growth coming. With those number this stock won’t generate much momentum. Frankly, the weak results last quarter could have been due to winter storms, so DG could beat the street and post teen profit growth going forward. We’ll have to wait and see.
DG has an estimated long-term earnings growth rate of 15% and a P/E of 16. I’ve seen this stock cheaper in years past.
Fair Value
My Fair Value P/E on DG is 18. I think this stock has decent upside potential here, but without good profit growth the stock will likely just hang around $55. In fact I prepared these charts a month ago when DG was $55 and yesterday the stock closed at $56.
Sharek’s Take
Dollar General is a solid stock to own. I think you can compound your money at 15% a year if you can get the stock at a good price. The price I would wait for is $50 a share.
View the Earnings Table here. View the Profit History here.View the Ten Year Chart here.
