Retail Stocks

Dollar General Corp Valuation – April 2018 $DG

Company Profile (excerpt from Reuters): Dollar General Corporation, incorporated on May 29, 1998, is a discount retailer. The Company operated 13,429 stores located in 44 states in the United States, as of March 3, 2017. It offers a selection of merchandise, including consumables, seasonal items, home products and apparel. Its consumables category includes paper and cleaning products (such as paper towels, bath tissue, paper dinnerware, trash and storage bags, laundry and other home cleaning supplies); packaged food (such as cereals, canned soups and vegetables, condiments, spices, sugar and flour); perishables (such as milk, eggs, bread, frozen meals, beer and wine); snacks (such as candy, cookies, crackers, salty snacks and carbonated beverages); health and beauty (such as over-the-counter medicines and personal care products, such as soap, body wash, shampoo, dental hygiene and foot care products); pet (such as pet supplies and pet food), and tobacco products. Its seasonal products include decorations, toys, batteries, small electronics, greeting cards, stationery, prepaid phones and accessories, gardening supplies, hardware, automotive and home office supplies. Its home products include kitchen supplies, cookware, small appliances, light bulbs, storage containers, frames, candles, craft supplies and kitchen, and bed and bath soft goods.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of DG – April 2018

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $25,718,550,394 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.43 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 211.22% Pass
6. Moderate PEmg Ratio PEmg < 20 18.90 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 4.24 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.43 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 2.03 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $5.06
MG Growth Estimate 10.35%
MG Value $147.85
Opinion Undervalued
MG Grade C-
MG Value based on 3% Growth $73.42
MG Value based on 0% Growth $43.04
Market Implied Growth Rate 5.20%
Current Price $95.70
% of Intrinsic Value 64.73%

Dollar General Corp. does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, poor dividend history, and the high PB ratio. The Enterprising Investor has concerns regarding the level of debt relative to the current assets. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $3 in 2015 to an estimated $5.06 for 2019. This level of demonstrated earnings growth outpaces the market’s implied estimate of 5.2% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value above the price.

At the time of valuation, further research into Dollar General Corp. revealed the company was trading above its Graham Number of $53.84. The company pays a dividend of $1.04 per share, for a yield of 1.1% Its PEmg (price over earnings per share – ModernGraham) was 18.9, which was below the industry average of 34.38, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-7.9.

Dollar General Corp. receives an average overall rating in the ModernGraham grading system, scoring a C-.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$7.90
Graham Number $53.84
PEmg 18.90
Current Ratio 1.43
PB Ratio 4.24
Current Dividend $1.04
Dividend Yield 1.09%
Number of Consecutive Years of Dividend Growth 3

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Most Recent Balance Sheet Figures

Balance Sheet Information 1/1/2018
Total Current Assets $4,247,852,000
Total Current Liabilities $2,964,878,000
Long-Term Debt $2,604,613,000
Total Assets $12,516,911,000
Intangible Assets $5,539,017,000
Total Liabilities $6,391,137,000
Shares Outstanding (Diluted Average) 271,220,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $5.75
Jan2018 $5.63
Jan2017 $4.43
Jan2016 $3.95
Jan2015 $3.49
Jan2014 $3.17
Jan2013 $2.85
Jan2012 $2.22
Jan2011 $1.82
Jan2010 $1.04
Jan2009 $0.34
Jan2008 $0.00
Jan2007 $0.44
Jan2006 $1.08
Jan2005 $1.04
Jan2004 $0.89
Jan2003 $0.78
Jan2002 $0.62
Jan2001 $0.21
Jan2000 $0.55
Jan1999 $0.45

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $5.06
Jan2018 $4.52
Jan2017 $3.84
Jan2016 $3.41
Jan2015 $3.00
Jan2014 $2.57
Jan2013 $2.07
Jan2012 $1.48
Jan2011 $0.98
Jan2010 $0.57
Jan2009 $0.41
Jan2008 $0.53
Jan2007 $0.81
Jan2006 $0.96
Jan2005 $0.84
Jan2004 $0.69
Jan2003 $0.57

Recommended Reading:

Other ModernGraham posts about the company

27 Companies in the Spotlight This Week – 4/4/15
Dollar General Corporation Annual Valuation – April 2015 $DG
14 Companies in the Spotlight This Week – 4/5/14
Dollar General Corp (DG) Annual Valuation – 2014

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Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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