Dollar General: Breakout bargain?
The discount retailer has caught the attention of bargain-oriented shoppers and investors alike.
With the economy weak, Dollar General (DG) has potential to benefit from increased sales as people look for bargains.
Based in Tennessee, the company operates 8,414 stores in 35 states selling housewares at low prices; it has annual revenue of $13.7 billion.
The stock came public in late 2009 trading at $22 and has climbed steadily the past two years. It recently broke out from a nine-week flat base and hit a new all-time high. Shares were up less than 1% Thursday to $40.98.
The stock, a defensive play, has weathered the bear market well. It is now in a strong up trend and the recent move to a new high could bring in more buying from the new-high trading crowd.
Technically, the base is ideal -- tight and above a rising 50-day moving average line. The momentum indicator has been mostly bullish for 4-months. The accumulation - distribution line is working higher and has given no hint of unusual selling pressure, but instead strong buying.
Net for the upcoming fiscal fourth quarter ending Jan. 31 should jump 262% to 81 cents a share from 64 cents a year ago. The highest estimate on the Street is at 83 cents a share. We see chances for a modest upside earnings surprise. The prior two quarters the company topped the consensus estimate by two to four cents a share.
For the fiscal year ending Jan. 30, analysts are forecasting a 25% gain in earnings to $2.31 a share from the $1.85 a share a year ago. The stock sells with a price-earnings ratio of 16, which is reasonable. Analysts have been lifting their estimates.
Net for fiscal 2013 should rise 16% to $2.68 a share from the anticipated $2.31 in fiscal 2012.
We are targeting DG for a move to $50 within the next few months. A protective stop can be placed near $37 giving it room.
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The stock is expensive and the guidance is weak -- not an appetizing combination.
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