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Buy DG Stock Before Q1 Earnings After Target, Walmart Impress?

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Target (TGT - Free Report) and Walmart (WMT - Free Report) both posted blowout first quarter earnings during the week of May 17, as they continue to flex their e-commerce muscles and one-stop shop appeal. Dollar General (DG - Free Report) is set to release its Q1 FY21 financial results on Thursday, May 27. So, is it time to buy the deep discount retailer on the dip?

DG’s Pitch

Walmart, Target, Costco (COST - Free Report) , and others are often regarded as discount retailers. But Dollar General might be even more of a true discount retailer than its rivals. 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 amassed over 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 2,000 stores and Walmart’s approximately 5,000 in the U.S. Dollar General has thrived in the e-commerce age by expanding its physical retail footprint in areas where Amazon (AMZN - Free Report) boxes might not be the norm.

DG has, of course, improved its digital offerings. The retailer’s expansion and appealing business model has helped it post high single-digit revenue growth for nearly a decade. And amid rising prices and inflation concerns, some consumers might be even more attracted to DG’s price points.

Outlook

The coronavirus environment propelled Dollar General’s 22% sales growth in 2020 that saw it pull in $33.7 billion. Yet DG fell short of our adjusted fourth quarter earnings estimate and analysts lowered their earnings outlooks.

Last year’s success was always going to make things a bit more difficult for Dollar General and other retailers. Yet, the recent showings from TGT and WMT might have investors expecting big things from DG.

With this in mind, Zacks estimates call for DG’s adjusted Q1 earnings to fall 17% to $2.12 a share, on 3.7% lower sales that would see it pull in $8.13 billion. Longer-term, the company’s fiscal 2021 revenue is projected to come in essentially flat (up 0.12%). At the bottom end, DG’s adjusted FY21 EPS figure is projected to slip 11% against the hard-to-compare FY20.

That said, Dollar is expected to bounce back next year, with FY22’s revenue projected to climb 8% higher to help lift its adjusted earnings by 13%.

Bottom Line

Dollar General shares have underperformed its industry in the last year, up 15% vs. 40%. The stock closed regular trading Friday about 9% below its highs at $205 a share and it is down 2% in 2021.

DG has also experienced some rather large swings in both directions recently and it’s currently well under neutral RSI levels of 50 at around 40. The recent downturn has pushed it below both its 50-day and 200-day moving averages as well.

DG currently lands a Zacks Rank #3 (Hold) and its 0.82% dividend yield falls well below TGT and Walmart. Therefore, investors might want to hold off on Dollar General for the moment and see how its Q1 results and guidance come in.

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