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Have You Offloaded Dollar General (DG) from Your Portfolio?


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“Should you find yourself in a chronically leaking boat, energy devoted to changing vessels is likely to be more productive than energy devoted to patching leaks.” - Warren Buffett

At the moment, the quote perfectly fits Dollar General Corporation (DG - Analyst Report) as the company’s stock has been performing disappointingly over the past few months. If you are still holding on to it then chances are slender that the stock, which lost its value by more than 21% in the past three months, will make any significant recovery in the near term. Let’s delve deeper and try to find out what is taking this Zacks Rank #5 (Strong Sell) company down the hill.

Ever since Dollar General reported dismal numbers for the second quarter of fiscal 2016 on Aug 25, 2016, its shares have slumped more than 21%. The company posted quarterly earnings of $1.08 per share that missed the Zacks Consensus Estimate by a penny. It generated sales of $5,391.9 million during the quarter which also missed the Zacks Consensus Estimate of $5,491 million, thus marking the 12th straight quarter of lower-than-expected sales.

Comparable-store sales also came in below management’s expectations on account of deflation in retail food price across perishable items; fall in both Supplemental Nutrition Assistance Program’s (SNAP) participation rates and benefit levels, unseasonably mild spring weather and stiff competition. Dollar General informed that price deflation and the reduction in SNAP benefits adversely impacted comparable-store sales by about 60 to 70 basis points.

Let’s look at the company’s earnings estimate revisions in order to get a clear picture of analysts’ opinion about the stock. In the past 30 days, Dollar General’s earnings estimates for fiscal 2016 and fiscal 2017 declined by 13 cents and 22 cents to $4.51 and $4.95, respectively. On the other hand, earnings estimates for the third quarter of fiscal 2016 have declined 6% to 94 cents, over the same time frame.

Well, the above discussion clearly indicates that it is time to change the boat before it sinks.

Stocks to Consider

Better-ranked stocks worth considering in the retail sector include Big Lots Inc. (BIG - Analyst Report) , Burlington Stores, Inc. (BURL - Snapshot Report) and Ross Stores Inc. (ROST - Analyst Report) . All these stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

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