Dollar General (DG - Free Report) shares have climbed over 20% in 2020, against the S&P 500’s 3% slide, on the back of its ability to expand during the coronavirus lockdowns. Yet as economies reopen, investors might still want to buy the soaring discount retailer for its longer-term growth potential within a niche that seems immune from Amazon (AMZN - Free Report) and others.
Dollar General’s Simple Pitch
Dollar General sells everything from food to motor oil for “everyday low prices,” unlike rival Dollar Tree’s (DLTR - Free Report) $1.00 for everything. The Goodlettsville, Tennessee-based firm operates roughly 16,500 stores across 46 U.S. states, often in more rural areas. DG’s smaller stores vastly outnumber Walmart’s (WMT - Free Report) roughly 5,300 locations.
DG has thrived in the e-commerce age by expanding its brick and mortar footprint in areas where boxes of Amazon packages on doorstops aren’t the norm. This is not to say that DG management has not rolled out digital offerings. The firm currently has a mobile app feature that enables customers to total up items in store to help them know exactly what they will pay at check out.
On top of that, DG is testing order online and pick up in store offerings that have become popular at Target (TGT - Free Report) and elsewhere, while currently offering shipping options. It’s worth pointing out that the company offers Dollar General private brands as well as name-brands. And its sales have climbed at a high single-digit clip or higher for a decade.
DG & the Coronavirus
Dollar General topped our Q1 earnings and revenues estimates at the end of May. The company’s quarterly sales jumped a whopping 28% to reach $6.6 billion, while same-store sales surged roughly 22%. Both of these figures marked far larger growth compared to recent periods and highlighted DG’s ability to expand during the coronavirus lockdown economy.
The company saw its adjusted quarterly earnings soar 73% to $2.56 a share to blow away our $1.70 estimate. Investors should note that Dollar General’s Q1 captured the three-month period ended on May 1, which featured more of the stay-at-home world than other firms with quarters that ended at the end of March.
Clearly, pandemic stockpiling and more economic uncertainty helped drive the discount retailer’s quarterly sales. And with millions of Americans out of work, Dollar General’s affordability might become even more important.
DG shares are up over 20% in 2020 and 34% since the market’s March 23 lows. The stock is currently trading just off its recent highs at around $187.85. The nearby chart shows that Dollar General has crushed the market over the last three years, up 140%, which also tops Walmart and Target’s 120% climb.
Dollar General still trades at a solid discount compared to its industry, at 1.5X forward 12-month sales vs. 2.2X. The company is also part of a highly-ranked Zacks industry and earns “A” grades for Growth and Momentum and “B” for Value in our Style Scores system. Plus, its dividend yield roughly matches the 10-year U.S. Treasury note.
Looking ahead, our Zacks estimates call for DG’s second quarter sales to jump 11.5%, with its fiscal 2020 revenue projected to pop 11.2% to hit $30.86 billion. This would mark its largest full-year sales growth since 2012. Meanwhile, its adjusted Q2 and FY20 earnings are both projected to climb over 20.5%.
Dollar General’s strong earnings estimate revision activity helps it earn a Zack Rank #1 (Strong Buy) at the moment. And investors might want to consider it as a longer-term investment for its ability to keep expanding in a quickly changing retail world. That said, some might want to wait for a pullback given its recent climb.
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