Bear of the Day: Dollar General Corporation (DG)

Dollar General (DG) shares have been a standout in the retail space for the past several years. But its near-term outlook is tough and its earnings revisions have moved in the wrong direction recently.

DG’s Quick Pitch

Dollar General strives to be even more of a true discount retailer than Walmart (WMT). DG sells everything from food to motor oil for “everyday low prices,” unlike rival Dollar Tree’s (DLTR) $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 boxes might not be the norm. Of course, DG has also worked to improve its digital offerings.

The retailer’s expansion and appealing business model has helped it post high single-digit revenue growth for nearly a decade.

Possible Slowdown

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 on March 18, 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. Zacks estimates call for DG’s 2021 revenue to come in essentially flat. At the bottom end of the income statement, DG’s adjusted fiscal 2021 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% to help lift its adjusted earnings by 13%.

Bottom Line

Dollar General’s earnings revisions activity helps it grab a Zacks Rank #5 (Strong Sell) at the moment, alongside a “D” grade for Momentum in our Style Scores system. The stock is also part of the Zacks Retail - Discount Stores space that sits in the bottom 4% of our over 250 Zacks industries.

DG shares did fall for roughly two months starting back in January. But it has already recovered almost completely from the downturn, which helped it briefly jump above overbought RSI levels. Therefore, investors might want to hold off on DG stock for now.

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Walmart Inc. (WMT) : Free Stock Analysis Report

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