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Buy Dollar General Stock After Walmart & Target's Strong Pandemic Earnings?

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Walmart (WMT - Free Report) and Target (TGT - Free Report) showcased their ability to shine during the pandemic earlier in the week, as consumers flocked to the retail giants and went all in on their expanded e-commerce offerings. The question is will Dollar General (DG - Free Report) continue to benefit from the coronavirus as it did in the first quarter?  

Retail Standout…

Dollar General isn’t necessarily in the same category as Walmart and Target, even though they are all considered discount retailers. DG operates roughly 16,500 smaller format stores across 46 U.S. states—compared to Walmart’s around 5,000 in the U.S.—often in more rural and working-class areas.

DG sells everything from food to motor oil for “everyday low prices,” unlike rival Dollar Tree’s (DLTR - Free Report) $1 for everything pitch. The company has also succeeded in the e-commerce age by expanding its brick and mortar footprint in areas where Amazon (AMZN - Free Report) boxes aren’t the norm.

Despite not diving head first into delivery, DG is transforming for the times in other ways. Dollar General has rolled out its own digital offerings and is testing out order online and pick up in store. And Wall Street clearly understands that Dollar General is making the right moves.

The nearby chart shows that DG stock has blown away Walmart, Dollar Tree, and its industry, and if it wasn’t for its recent post-earnings climb, it would have topped TGT over the last three years. DG shares are up 28% in 2020 and currently rest right below their highs of around $200 per share. And Dollar General trades at discount to industry, as it has for years.

 

 

 

 

 

 

 

 

 

 

 

 

Outlook

Dollar General’s revenue has jumped at a high single-digit clip or higher during the last ten years. The firm then topped our first quarter estimates at the end of May, with sales up 28% and its adjusted earnings up 73%.

With this in mind, our Zacks estimates call for Dollar General’s second quarter sales to jump 18.6% to come in at $8.28 billion. Peeking further down the road, DG’s fiscal 2020 sales are projected to climb 16.2% to hit $32.26 billion. This would represent its strongest growth since 2012.

At the bottom end of the income statement, its adjusted Q2 earnings are expected to surge 37% to $2.38 per share. Dollar General’s FY20 earnings are then projected to jump 32%.

Bottom Line

Dollar General is scheduled to release its second quarter financial results before the market opens on Thursday, August 27. The firm has topped our quarterly earnings estimates in the trailing four periods, including a 50% beat last quarter.

DG’s positive earnings revisions activity helps it earn a Zacks Rank #2 (Buy) at the moment, alongside its “B” grade for Value and “A” for Growth in our Style Scores system. Plus, Dollar General is part of the Retail - Discount Stores industry that rests in the top 15% of our over 250 Zacks industries, and its 0.73% dividend yield tops the 10-year U.S. Treasury.  

At the moment, estimates call for DG’s fiscal 2021 sales and earnings to slip against a hard to compare period, spurred by pandemic stockpiling. However, economic uncertainty remains and the company offers its consumers affordability in both the best and worst of times.

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