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Dollar General (DG) Soars 5%: Is Further Upside Left in the Stock?

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Dollar General (DG - Free Report) shares ended the last trading session 5% higher at $187.78. The jump came on an impressive volume with a higher-than-average number of shares changing hands in the session. This compares to the stock's 11.9% loss over the past four weeks.

Shares of Dollar General have gained owing to the optimism surrounding its long-term growth prospects. Quite a few analysts remain bullish on the stock, in spite of the company’s lackluster view for fiscal 2021. We believe that the company’s commitment toward better pricing, private label offering, inventory management and supply chain efficiencies should drive sales.

Markedly, the company’s operational capabilities coupled with real estate growth strategy and focus on non-consumable items position it well to gain market share. For fiscal 2021, management plans to carry out 2,900 real estate projects. This includes 1,050 new store openings, 1,750 remodels and 100 relocations. It now plans to open 50 Popshelf stores — up from its initial target of 30 — by the end of fiscal 2021.

Earlier, the company came up with fourth-quarter fiscal 2020 results, wherein both the top and the bottom lines improved from the prior-year period. While net sales surpassed the Zacks Consensus Estimate, earnings were weaker than expected.

The company projects a decline of 4-6% in same-store sales for fiscal 2021 compared with the last year that benefited from coronavirus-led demand spike. Nonetheless, on a two-year stack basis, the guidance indicates growth of approximately 10-12% for fiscal 2021.

Price and Consensus

Price Consensus Chart for DG

This discount retailer is expected to post quarterly earnings of $2.18 per share in its upcoming report, which represents a year-over-year change of -14.8%. Revenues are expected to be $8.15 billion, down 3.5% from the year-ago quarter.

While earnings and revenue growth expectations are important in evaluating the potential strength in a stock, empirical research shows a strong correlation between trends in earnings estimate revisions and near-term stock price movements.

For Dollar General, the consensus EPS estimate for the quarter has been revised marginally down over the last 30 days to the current level. A positive trend in earnings estimate revision usually translates into price appreciation. So, make sure to keep an eye on DG going forward to see if this recent jump can turn into more strength down the road.

The stock currently carries a Zacks Rank 3 (Hold). You can see the complete list of today's Zacks Rank #1 (Strong Buy) stocks here >>>>

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