Case Study: What Credible analysts are saying on Dollar General (DG) stock
Key Points
Dollar General shares fell by 4.97% this week. On a year-to-date basis, DG shares are up by 3.6%. This compares favorably to the S&P 500, which is down by approximately 15.1% during 2022 thus far.
Dollar General continues to see same-store sales and overall revenues increase; however, ongoing supply chain issues and high inflation are hurting its bottom-line.
Dollar General posted Q3 earnings this week, beating Wall Street’s expectations on the top line, but missing on the bottom. DG reported sales of $9.5 billion, beating Wall Street estimates by $70 million, representing 11.8% year-over-year growth. The company’s GAAP EPS was $2.33, which was $0.21 below Wall Street’s consensus.
65% of recent articles published by credible authors focused on DG shares offer a “Bullish” bias. 7 out of the 9 credible credible Wall Street analysts who cover Dollar General believe shares are likely to rise in value. The average price target being applied to Dollar General by these credible analysts is $274.11, which implies upside potential of approximately 12.4% relative to DG's current share price of $243.96
Marianne Wilson, the Editor-in-Chief at Chain Store Age, who is a Nobias 4-star rated author: “The discounter remains committed to expanding its footprint, with plans to execute approximately 3,170 U.S. real estate projects in fiscal year 2023 (ending Feb.2, 2024), including 1,050 new stores, 2,000 remodels, and 120 store relocations.”
Harrison Miller, a Nobias 4-star rated author: “The company reported difficulty acquiring warehouse space for its excess inventories, which caused higher-than-expected supply chain costs and will weigh on its Q4 and full-year results.”
Performance
Event & Impact
Noteworthy News:
Nobias insights
Bullish Take:
Bearish Take:
Dollar General (DG), the discount retailer, may seem like a boring stock pick at first glance; however, its historical results have been anything but boring. Over the last 5 years, DG shares have produced price returns of 169.96%.
Over the last 10 years, DG shares have seen their value increase by 421.28%. Both of these results beat the broader market by a wide margin; during the trailing 5 and 10-year periods, the S&P 500 has seen its value increase by 54.85% and 187.13%, respectively. Yet, this past week DG shares experienced a dip, on what a credible Wall Street analyst called a “rare miss” during its Q3 earnings report.
DG Dec 2022
Dollar General shares initially sank by roughly 9% after posting Q3 results on Thursday; however, after a Friday rally, they closed the week with a -4.97% performance. According to the consensus opinions of the credible authors and Wall Street analysts that the Nobias algorithm tracks, this recent weakness has opened up a buying opportunity with double digit upside.
Bearish Nobias credible authors:
Harrison Miller, a Nobias 4-star rated author, covered Dollar General’s Q3 earnings in a report that he published this week at Investors.com. Miller wrote, “Goodlettsville, Tenn.-based Dollar General's results improved over the year, but the discount chain wasn't able to beat analysts' earnings predictions.” He compared and contrasted the Wall Street consensus versus Dollar General’s actual results, stating: “Expectations: Analysts expected earnings to leap 22% to $2.54 per share on 10.7% revenue growth to $9.24 billion.
Results: Dollar General earnings climbed 12% to $2.33 per share. Sales rose 11.1% to $9.5 billion.”
Miller said, “Dollar General's same-store sales grew 6.8% for the period, driven by an increase in average transaction amounts and modest customer traffic growth.” But, he also highlighted ongoing supply chain issues which hurt the company’s profit margins, stating, “The company reported difficulty acquiring warehouse space for its excess inventories, which caused higher-than-expected supply chain costs and will weigh on its Q4 and full-year results.”
Looking ahead, Miller put a spotlight on management’s updated forward guidance. He said, “Dollar General expects EPS between $3.15 and $3.30 per share for the fourth quarter, which would translate to 7% to 8% earnings growth for fiscal 2022.”
“That's lower than its previous range of 12% to 14% growth,” Miller wrote. “However,” he continued, “DG still expects 11% sales growth for the year. And it sees same store sales growing 6% to 7% for Q4, which would be in the upper end of its anticipated 4% to 4.5% range for 2022.”
Marianne Wilson, the Editor-in-Chief at Chain Store Age, who is a Nobias 4-star rated author, also covered Dollar General’s Q3 results in an article this week. Like Miller, Wilson focused on rising costs and the supply chain issues that hurt Dollar General’s bottom-line. She said, “Dollar General’s third-quarter sales rose 11.1% but costs took a bite out of the company’s earnings.”
Regarding the company’s profit figures, Wilson wrote, “Net income rose to $526.17 million, or $2.33 a share, in the quarter ended Oct. 28, from $487.03 million, or $2.08 a share, in the year-ago period. Analysts had expected earnings of $2.54 a share.” She quoted Jeff Owen, who began his tenure as Dollar General’s CEO in November, who spoke about supply chain concerns during the company’s earnings report, stating:
“Despite the cost pressures we experienced during the quarter, as well as challenges within our internal supply chain resulting in higher-than-anticipated distribution and transportation costs, our team was resilient and worked hard to deliver double-digit diluted EPS growth. We believe the majority of these and other gross margin pressures are largely temporary, and we are confident in our plans to drive greater supply chain efficiencies moving forward."
Wilson continued, writing, “As of October 28, 2022, Dollar General’s total merchandise inventories, at cost, were $7.1 billion compared to $5.3 billion as of October 29, 2021, an increase of 28.4% on a per-store basis. This increase primarily reflects the impact of product cost inflation, as well as a greater mix of higher-value products, particularly in the home and seasonal categories, the company said.”
Yet, Wilson also noted that Dollar General still has aggressive plans to expand its physical footprint, providing growth opportunities to investors looking forward. She wrote, “The discounter remains committed to expanding its footprint, with plans to execute approximately 3,170 U.S. real estate projects in fiscal year 2023 (ending Feb.2, 2024), including 1,050 new stores, 2,000 remodels, and 120 store relocations.”
Overall, the majority of credible authors who have recently covered Dollar General shares in articles have expressed a bullish opinion. 65% of articles published by credible authors have expressed a “Bullish” bias. And we see similar data from the credible Wall Street analysts that Nobias tracks who have provided reports on Dollar General. 7 out of the 9 credible authors who follow DG shares believe that they’re likely to increase in value.
Nicholas Ward is a Senior Investment Analyst at Wide Moat Research. He has spent the last 8 years writing about the stock market at various publications, including Seeking Alpha, The Street, Forbes Real Estate Investor, Sure Dividend, The Dividend Kings, iREIT, Safe High Yield, and The Intelligent Dividend Investor.
Since Dollar General’s Q3 results Nobias has seen 2 credible analysts lower their price targets for DG shares. BMO Capital analyst Kelly Bania, a Nobias 4-star rated analyst, lowered her price target on Dollar General to $255 from $265. However, Bania kept a “Market Perform” rating on the shares, noting that Dollar General’s disappointing Q3 results were a "rare miss" and moving forward, the analyst continues to believe that the company is going to capture market share due to its relatively low cost goods in a tough macro environment for price sensitive consumers.
Truist analyst Scot Ciccarelli, a Nobias 4-star rated analyst, lowered his price target on Dollar General to $237 from $262. Ciccarelli maintained his “Hold” rating on the shares, noting that supply chain issues were an ongoing headwind, while expressing concern that lower-income individuals would see continued negative spending pressure as inflation eats away at their purchasing power at a high rate.
Overall bias of Nobias Credible Analysts and Bloggers:
However, despite these lower price targets, the average price target being attached to DG shares by these credible individuals is $274.11. Today DG shares trade for $243.96, which means that the credible analyst average price target implies upside potential of approximately 12.4%.
Disclosure: Nicholas Ward has no DG position. Nicholas Ward wrote this article for Nobias at their request with the intention of giving investors a balanced perspective based on the writings of Nobias highly rated analysts and bloggers. Nobias has no business relationship with any company whose stock is mentioned in this article and does not have a position in this stock.
Additional disclosure: All content is published and provided as an information source for investors capable of making their own investment decisions. None of the information offered should be construed to be advice or a recommendation that any particular security, portfolio of securities, transaction, or investment strategy is suitable for any specific person. The information offered is impersonal and not tailored to the investment needs of any specific person.
Disclaimer: The Nobias star rating is based on past performance results and is not an indicator of future results. These past performance returns do not represent returns that any investor actually earned. Assumptions made include the ability to purchase the stocks recommended by the author under liquid markets where the transaction would be at the market price for the day. In reality, loss in liquidity may have a material impact on the returns that actually may have been earned. Further, returns are calculated without any including transaction costs, management fees, performance fees or expenses, or reinvestment of dividends and other income. This information is provided for illustrative purposes only.