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Dollar General Corporation

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The story isn't over for the discount retailers. Dollar General Corporation (DG - Free Report) recently reported record fourth quarter results as consumers continue to look for value. This Zacks #1 Rank (strong buy) is expected to grow earnings in the double digits in 2011 and 2012.

Dollar General operates 9300 small-box discount stores and 9 distribution centers in 35 states. It is among the largest retailers of many brand named merchandise from Proctor & Gamble, Unilever, Kellogg's, General Mills, and Kimberly Clark.

Dollar General Surprised for the 6th Quarter in a Row

Since going public in 2009, Dollar General has surprised on the Zacks Consensus every single time.

On Mar 22, Dollar General reported fiscal fourth quarter 2010 results and beat the Zacks Consensus by 8.5%. Earnings per share were 64 cents compared to the consensus of 59 cents. It made 51 cents in the fourth quarter of 2009.

Sales rose 9.4% to $3.5 billion. Same-store sales also climbed 3.8% as same-store customer traffic and average transaction amounts also rose.

The fiscal fourth quarter ended on Jan 28, 2011. Because of tough winter weather in some part of the company in January, sales did lose some momentum in the second half of the quarter.

Gross profit increased 23 basis points in the quarter to a record 32.4%.

Outlook for Fiscal 2011

Sales are expected to remain robust in 2011 with same-store sales forecast in the 3% to 5% range.

Earnings per share is expected between $2.20 and $2.30 per share.

Zacks Consensus Estimates Rise

Not surprisingly, given the record quarter, analysts have been raising estimates for 2011 and 2012.

The fiscal 2011 Zacks Consensus jumped to $2.26 from $2.14 in the last 30 days with 16 analysts raising estimates in that time period.

That is earnings growth of 22.2%.

A further 14.9% earnings growth is expected in fiscal 2012 as 10 analysts raised estimates in the prior month. The 2012 Zacks Consensus jumped to $2.60 from $2.50 per share.

Lots of Value in Dollar General's Shares

Even as shares are trading near 2-year highs, there is still value in Dollar General.

It has a forward P/E of 14, which is under the 15x cut-off I use for a value stock. Its price-to-book ratio is also under the value parameter of 3.0, as its at 2.7.

But an even stronger "value" signal is that the price-to-sales ratio is very cheap at 0.8. A P/S ratio under 1.0 usually indicates value.

The company also has other strong fundamentals. Given its growth rate, it has a PEG ratio of just 0.9 and a solid 1-year return on equity (ROE) of 17.1%.

You can check out the recent share action. Notice that shares haven't been trading the full 2 years.

Tracey Ryniec is the Value Stock Strategist for Zacks.com. She is also the Editor in charge of the market-beating Zacks Value Trader service. You can follow her at twitter.com/traceyryniec.


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