Wall Street has eased up on Dollar General DG stock, with the deep discount retailer trading 15% below its October 2020 records heading into its fourth quarter fiscal 2020 financial release on March 18. Investors are worried that DG, Walmart (NYSE:WMT) WMT, and others will find it difficult to replicate their 2020 success that was driven by a wave of pandemic-boosted shopping.
Recent Growth & Outlook
The last year was fantastic for big-box retailers such as Walmart, Target TGT, and Costco COST. Dollar General posted some of its strongest growth ever, including 28% sales growth in Q1 and 25% in Q2. Most recently, DG topped our third quarter estimates that saw its revenue pop 17%, while its comparable-store sales climbed 12%.
With these recent figures at the top of mind, our current Zacks estimates call for Dollar General’s Q4 revenue to climb another 15.5% to $8.26 billion to help push its adjusted earnings figure up by 28% to $2.69 a share. Overall, DG’s full-year 2020 sales are projected to climb 21% to $33.6 billion. Meanwhile, its adjusted earnings are projected to soar 58%.
The discount retailer’s top-line growth would represent its strongest since 2012’s 14% revenue climb. Yet, the company’s FY21 estimates call for just 1.4% higher revenue and a small pull back on the earnings front, as it faces a nearly impossible to compete against period.
What Else
Dollar General’s 2021 outlook is part of the reason the stock is down 15% from its October 2020 records. But that doesn’t mean that longer-term investors should ignore the stock because DG operates a rather unique retail business that is not going out of style.
DG boasts nearly 17,000 smaller format stores across most of the U.S., often in more rural and working-class areas. The company’s locations far outnumber Target’s roughly 1,900 stores and Walmart’s approximately 5,000 in the U.S.
Dollar General strives to be even more of a true discount retailer than Walmart and Target. DG sells everything from food to motor oil for “everyday low prices,” unlike rival Dollar Tree’s DLTR $1 for everything pitch.
Dollar General has thrived in the e-commerce age by expanding its brick and mortar footprint in areas where Amazon AMZN boxes might not be the norm. This will likely be vital to its continued growth and expansion. Despite its somewhat unique position isolated from direct Amazon competition, Dollar General is still evolving.
Dollar General has bolstered its digital ecosystem. These efforts include order online and pick up in store. DG also has an app that allows consumers to scan items as they shop to make sure they stay on budget and help find digital coupons.
Bottom Line
The nearby chart highlights DG’s nice run that’s seen it outpace WMT and its sector over the last three years. Dollar General’s outperformance is even more striking over the last decade that’s seen its double Target. But DG has fallen way behind its industry in the past year, up 30% vs. 60%.
Dollar General closed regular trading Friday at roughly $192 a share, down 15% from its October 2020 highs. And a large chunk of the selling has come since mid-January. Luckily, DG has shown signs of life recently, after it fell into oversold territory in terms of RSI in early March, with it up 9% since March 5.
When it comes to valuation, DG is trading at a discount to its own year-long median in terms of forward 12-month earnings. And at 18.7X earnings, the stock trades well below its industry’s 33.8X, as it has for years.
Dollar General currently lands a Zacks Rank #3 (Hold), alongside a “B” grade for Value and an “A” for Growth in our Style Scores system. The company also pays a dividend that is yielding 0.75% at the moment and it resumed its share repurchase plan during the second quarter.
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