Reaction to mixed results
Dollar General (DG) stock declined 7.5% to $111.64 on March 14, the day the company declared mixed results for the fourth quarter of fiscal 2018, which ended on February 1, 2019. The stock recovered 2.0% on March 15. Dollar General exceeded analysts’ sales expectations but lagged earnings estimates for the fourth quarter. Investors were also concerned about the fiscal 2019 outlook and the impact that the company’s planned spending on growth initiatives will have on the fiscal 2019 profitability.
Dollar General’s adjusted EPS grew 24.3% to $1.84 and missed analysts’ estimate of $1.88. The company’s adjusted EPS increased 33% to $5.97 for full-year fiscal 2018. Dollar General expects its reported EPS in the $6.30 to $6.50 range in fiscal 2019. Analysts’ reaction to results was mixed, as some analysts raised the price target for Dollar General stock and some lowered it. On March 15, J.P. Morgan lowered its price target to $121 from $127. Telsey Advisory Group lowered its price estimate to $122 from $126, and Morgan Stanley reduced it to $118 from $119.
In contrast, Jefferies raised its price target to $104 from $101, and BMO increased its price target to $133 from $126. UBS raised its price target to $126 from $125. The 12-month average price target for Dollar General stock of $120.48 implies an upside potential of about 6% compared to the closing stock price of $113.89 on March 15. On a year-to-date basis, Dollar General stock has risen 5.4%, lagging the 10.6% rise in Dollar Tree (DLTR) and the 12.6% rise in the S&P 500 Index.
As of March 15, Dollar General was rated a “buy” by 18 (or 64%) out of 28 analysts, while ten analysts had a ”hold” recommendation. Dollar Tree has been assigned a “buy” recommendation by 17 (or 65%) out of 26 analysts and a “hold” recommendation by nine analysts.
In this series on Dollar General, we’ll discuss in detail its sales, earnings, and margins for the fourth quarter and the full-year fiscal 2018. We’ll also look at the company’s outlook. In part four of this series, we’ll take a closer look at the company’s strategy to improve its performance including two new transformation plans—DG Fresh and Fast Track.