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No Bang for Buck: Dollar General Beats, Stock Slumps

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No Bang for Buck: Dollar General Beats, Stock Slumps PART 1 OF 6

Dollar General’s Fiscal 2Q17 Earnings Overview

DG’s fiscal 2Q17 overview

Dollar General (DG) released its fiscal 2Q17 results on Thursday, August 31, 2017. The results relate to the three-month period ending August 4, 2017.

The company did better than Wall Street’s expectations for both top and bottom lines. This was the third-straight revenue and earnings beat for DG.

Dollar General&#8217;s Fiscal 2Q17 Earnings Overview

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Total sales stood at ~$5.8 billion, which was 8.1% higher YoY (year-over-year) and $30 million higher than the Wall Street expectation. EPS (earnings per share) rose 1.9% YoY to $1.01, which was $0.01 higher than the expectation.

About Dollar General

Headquartered in Tennessee, Dollar General is among the largest discount retailers in the US. As of August 2017, the company was operating ~14,000 stores in 44 states. By comparison, competitor Dollar Tree (DLTR) operates 14,581 stores across 48 US states and five Canadian provinces.

Investors looking for exposure to Dollar General can consider the Van Eck Retail RTF (RTH), which invests 2.8% of its total holdings in DG.

Valuations update and stock recommendation

Dollar General is now trading at a one-year forward PE (price-to-earnings) ratio of 15.2x, compared with its the three-year average of 17.2x. It’s trading at a discount to Dollar Tree’s (DLTR) forward PE ratio 16.4x. TJX Companies (TJX) has a PE ratio of 17.5x, while PriceSmart (PSMT) has a ratio of 25.2x.

The average 12-month price target by the 29 analysts covering Dollar General is $81.74, indicating an upside of ~13% over the next year.

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