Dollar General Corp (DG) Annual Valuation – 2014

Dollar_General_logoBenjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a specific look at how Dollar General Corp fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Dollar General Corporation is a discount retailer in the United States by number of stores, with 9,961 stores located in 39 states as of March 2, 2012, primarily in the southern, southwestern, midwestern and eastern United States. The Company offers a selection of merchandise, including consumables, seasonal, home products and apparel. The Company’s merchandise includes national brands from manufacturers, as well as private brand selections with prices at substantial discounts to national brands. It offers its merchandise at everyday low prices through its convenient small-box (approximately 7,200 square feet) locations. During the fiscal year ended February 3, 2012 (fiscal 2011), it opened 625 stores and remodeled or relocated 575 stores, and closed 60 stores. Its small box stores offer consumable items, including packaged and refrigerated foods.

DG Chart

DG data by YCharts

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 2/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 – FAIL
  3. Earnings Stability – positive earnings per share for at least 10 straight years – FAIL
  4. Dividend Record – has paid a dividend for at least 10 straight years – FAIL
  5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – PASS
  6. Moderate PEmg ratio – PEmg is less than 20 – PASS
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – FAIL

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 3/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – PASS
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – FAIL
  3. Earnings Stability – positive earnings per share for at least 5 years – PASS
  4. Dividend Record – currently pays a dividend – FAIL
  5. Earnings growth – EPSmg greater than 5 years ago – PASS

Valuation Summary

Key Data:

Recent Price $57.44
MG Value $99.05
MG Opinion Undervalued
Value Based on 3% Growth $37.30
Value Based on 0% Growth $21.87
Market Implied Growth Rate 6.91%
Net Current Asset Value (NCAV) -$7.13
PEmg 22.33
Current Ratio 1.77
PB Ratio 3.37

Balance Sheet – 1/31/2014

Current Assets $3,205,600,000
Current Liabilities $1,812,000,000
Total Debt $2,742,800,000
Total Assets $10,867,500,000
Intangible Assets $5,546,200,000
Total Liabilities $5,465,300,000
Outstanding Shares 317,060,000

Earnings Per Share

2014 $3.17
2013 $2.85
2012 $2.22
2011 $1.82
2010 $1.04
2009 $0.34
2008 -$0.02
2007 $0.44
2006 $1.08
2005 $1.04

Earnings Per Share – ModernGraham

2014 $2.57
2013 $2.07
2012 $1.48
2011 $0.98
2010 $0.56
2009 $0.41



Dollar General Corp does not qualify for either the Defensive Investor or the Enterprising Investor.  For the Defensive Investor, the company’s current ratio is too low, it has not demonstrated sufficient earnings stability over the ten year period, it does not have a strong enough dividend history, and it is trading at high PEmg and PB ratios.  For the Enterprising Investor, there is a high level of debt and a lack of dividends.  As a result, value investors seeking to follow the ModernGraham approach based on Benjamin Graham’s methods should explore other opportunities through a review of ModernGraham’s valuation of Walmart Stores Inc. (WMT) and ModernGraham’s valuation of Target Corp (TGT).  From a valuation side of things, the company appears to be significantly undervalued after growing its EPSmg (normalized earnings) from $0.56 in 2010 to $2.57 for 2014.  This solid level of demonstrated growth more than supports the market’s implied estimate of 6.91% earnings growth and leads the ModernGraham valuation model to return an estimate of intrinsic value that exceeds the market price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Dollar General Corp (DG)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

If you like our valuations, why not check out ModernGraham Stocks & Screens?  It’s a great way to review the valuations while screening for things like low PE ratio, undervalued companies, etc.!

Disclaimer:  The author did not hold a position in Dollar General Corp (DG) or any other company mentioned in the article at the time of publication and had no intention of changing that position within the next 72 hours.

Logo taken from wikipedia; this article is not affiliated with the company in any manner.





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