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How Will Dollar General’s Stock Price Respond to the Fiscal 2Q16 Results?

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Fiscal 2Q16 results are just around the corner

Dollar General (DG) will be releasing its 2Q16 results on August 25, 2016 (fiscal 2Q16 ended on July 30, 2016). The stock price of the $25.4-billion discount retailer has risen by 23.6% on a YTD (year-to-date) basis to $89.49 as of August 16, 2016. The company’s stock price has surged by 1.7% since the announcement of its 1Q16 results in May 2016.

Dollar General’s stock price jumped by 4.6% on May 26, 2016, in reaction to its fiscal 1Q16 results. The company beat the analyst estimates for earnings in 1Q16 but missed the sales estimates.

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Peer performance

The stock prices of Dollar Tree (DLTR), Wal-Mart Stores (WMT), and Costco Wholesale (COST) have increased by 21.2%, 18.6% and 5.6%, respectively, on a YTD basis as of August 16, 2016.

Notably, Dollar General has outdone the S&P 500 Consumer Discretionary Index, which recorded a YTD growth of 6.3% as of August 16.

Downgrade from “buy” to “hold”

The stock price of Dollar General dipped by 0.8% on August 15, 2016, after Jefferies downgraded its recommendation from “buy” to “hold.” Analyst Daniel Binder of Jefferies gave his verdict based on the cut-throat price competition and high valuation of the company. Binder assigned a 12-month target price of $96 to the stock.

On August 1, 2016, Deutsche Bank downgraded Dollar General’s stock from “buy” to “hold” due to margin concerns. However, Deutsche Bank increased its 12-month price target for the company from $95 to $99 in view of the company’s strong same-store sales growth.

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As of August 16, 21 out of 26 analysts issued a “buy” recommendation to Dollar General’s stock. The remaining five issued “holds,” and none issued a “sell.” The average 12-month target price for Dollar General’s stock is $99.59, implying a return potential of 11.3% from the stock price of $89.49 on August 16.

Notably, the PowerShares Dynamic Large Cap Growth Portfolio (PWB) invests 1.4% of its portfolio in Dollar General.

Series overview

In this earnings preview series, we’ll discuss the analyst expectations for Dollar General’s sales, earnings, and margins in fiscal 2Q16. We’ll also discuss the company’s valuations.

Let’s start with a discussion of the company’s fiscal 2Q16 sales expectations.

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