DG Market Research & Analysis Report
Updated Apr 28, 2015

Growth and Balance Sheet

Dollar General Corp. (DG) reported fiscal fourth-quarter net income of $355.4 million. On a per-share basis, the company said it had net income of $1.17. The results matched Wall Street expectations. The average estimate of 12 analysts was also for earnings of $1.17 per share. The discount retailer posted revenue of $4.94 billion in the period, missing Wall Street forecasts. Nine analysts expected $4.96 billion. For the year, the company reported profit of $1.07 billion, or $3.49 per share. Revenue was reported as $18.91 billion. The discount retailer's same-store sales rose 4.9 percent. Dollar General also authorized a $1 billion share repurchase plan Dollar General expects full-year earnings to be $3.85 to $3.95 per share.

Dollar General said it will open approximately 730 new stores in 2015, bolstering its current footprint of 11,789 stores across 40 states. To compare, Dollar Tree will have approximately 13,000 stores after it combines with Family Dollar.

Valuation

Dollar General P/E stands at 21.83 below the industry average of 28.24, and above the S&P 500 average of 17.83 The company is currently trading above the maximum P/E ratio of 15x, and over the last five years, the company’s shares have traded in the range of 21.40x to 21.20x trailing 12-month earnings. DG's current Price/Sales of 1.23 above the average of its industry of 0.86. DG’s head to head comparison to its main competitors shows that the company has gross margin below it’s peers, and one that is at the industry average. The achieved operating margin of the company is above of the selected competitors, and it is above the industry average. The quarterly revenue growth of the company is 10.00% above the industry average. The stock is currently trading below its intrinsic value of $79.73 this suggests that the stock is currently undervalued at these levels. The beta of 1.16 implies higher volatility of the stock with respect to the S&P 500. DG has shown positive earnings consistency over the last five years. Company’s earnings have increased by 27.44% over the same period. The current quarter earnings in comparison to the same quarter last year have decreased by 15.84. DG’s Total Debt/Equity of 48.00 is above the required maximum but below the industry average. DG’s current price levels are above the maximum level, is trading  1% below the 52 week high of $76.99, and the technical analysis give a bullish view of the stock. The majority of analyst ratings are bullish. DG has a dividend payout ratio of 15% and a trailing annual dividend yield of 0.30%.

About DG

Dollar General Corporation, incorporated on May 29, 1998, is a discount retailer. The Company offers a selection of merchandise, including consumable products such as food, paper and cleaning products, health and beauty products, pet supplies and tobacco products, and non-consumable products such as seasonal merchandise, home decor and domestics, and basic apparel. The Company is focused on serving the needs of the low, low-middle and fixed income consumers. It offers merchandise at everyday low prices (ranging $10 or less) through small-box locations.

Competitor Comparison

Dollar General Corporation N.V.

Highlights

The Company’s selling space covers, on an average, approximately 7,400 square feet. As of February 28, 2014, the Company operates 11,215 retail stores located in 40 states across the United States. The stock closed yesterday’s trading session at $76.20. In the past year, the stock has hit a 52-week low of $53.00 and 52-week high of $76.99. DG has a market cap of $23.14 billion and is part of the services sector.

• Inexpensive private label    
• Present in more than 11000 locations
• Strong central management

• Store size is not very large    
• Increasing operational costs   
• High competition from local players   

DG Intrinsic Value

Stock Valuation Model & Intrinsic Value Definitions

Investors should keep an eye open for stocks that are trading within 10% of their 52-week highs, as it is likely to continue in its upward trend. DG's 52 week high is $76.99 current price is $76.20, is 1% below the 52 week high.

The Price/Earnings (P/E) ratio, based on the greater of the current PE or the PE using average earnings over the last 3 fiscal years, must be "moderate", which in this model states is not greater than 15. Stocks with moderate P/Es are more defensive by nature. The company has a P/E ratio of 21.83 below the average industry P/E ratio of 28.23 and is above the S&P 500 P/E ratio of 17.83.

When there is strong insider ownership which we define as 8% or more, management is more likely to act in the best interest of the company, as their interests are right in line with that of the shareholders. Insiders own 0.18% of DG stock. Management's representation is not large enough. This does not satisfy our minimum requirement; companies that pass this test are more attractive to our valuation model.

The model is using several technical indicators (MACD, RSI, MFI, OBV, position Indicators) to forecast the trend of the stock for 6 and 12 months, and assign a value.

DG is trading in the range of $73.37 - $76.99 in the past 30 days. The stock has been showing support at $75.40 and resistance in the $76.60 range. The stock is trading above the 50-Day Moving Average and above the 200-Day Moving Average. The RSI(14) is 57.19. Our indicators give a bullish view on DG.

The financial health of the company the higher the better, we evaluate all the financial ratios of the company.

Investor’s sentiment for the stock.

The model assigns a value according to analyst’s recommendation for the stock. Analyst rating on Reuters.com is 9 Buy, 8 Outperform, 8 Hold, 1 Underperform and no Sell.

We are searching for EPS numbers that are better than the previous year's. One dip is allowed, but the following year's earnings should be higher than the previous year. DG’s annual EPS for the last 5 years were 1.88, 2.22, 2.85, 3.16, 3.48 this type of earnings action is positive.

The company must have a low Debt/Equity ratio, which indicates a strong balance sheet. The Debt/Equity ratio should not be greater than 20% or should be less than the average Debt/Equity for its industry. DG’s have total debt/equity ratio of 48.00% which is neutral.

The EPS growth for this quarter relative to the same quarter a year earlier is above the minimum 15% that this model likes to see for a "good" growth company. Stocks with improving earnings are worthy of your extra attention. DG’s EPS growth for this quarter relative to the same quarter a year earlier is -15.84%, below our target.

This stock valuation model looks for annual earnings growth above 12%, but prefers higher than 20%. DG’s annual earnings growth rate over the past five years is 27.24%, above the target growth rate.

¹Tradespoon Score and Outlook: This score conveys Tradespoon’s long-term outlook of 1 to 5 years for a particular stock. Tradespoon uses proprietary methods to rate its trading picks on a scale from 1 to 10, with a 10 being the most favorable expected risk and return outlook. To determine a stock’s rating, Tradespoon uses an advanced algorithm that factors in fundamental and technical analysis to determine a stock's expected risk and return.