Retail

Dollar General Corp Valuation – February 2019 $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.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of DG – February 2019

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 $30,578,666,799 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.55 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 215.16% Pass
6. Moderate PEmg Ratio PEmg < 20 22.67 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 4.86 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 1.55 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 1.76 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 $5.13
MG Growth Estimate 10.68%
MG Value $153.23
Opinion Fairly Valued
MG Grade C+
MG Value based on 3% Growth $74.39
MG Value based on 0% Growth $43.61
Market Implied Growth Rate 7.09%
Current Price $116.32
% of Intrinsic Value 75.91%

Dollar General Corp. is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, poor dividend history, and the high PEmg and PB ratios. The Enterprising Investor is only concerned with the level of debt relative to the net current assets. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Fairly Valued after growing its EPSmg (normalized earnings) from $3 in 2015 to an estimated $5.13 for 2019. This level of demonstrated earnings growth supports the market’s implied estimate of 7.09% 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 within a margin of safety relative to the price.

At the time of valuation, further research into Dollar General Corp. revealed the company was trading above its Graham Number of $55.24. The company pays a dividend of $1.04 per share, for a yield of 0.9% Its PEmg (price over earnings per share – ModernGraham) was 22.67, which was below the industry average of 27. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-8.04.

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) -$8.04
Graham Number $55.24
PEmg 22.67
Current Ratio 1.55
PB Ratio 4.86
Current Dividend $1.04
Dividend Yield 0.89%
Number of Consecutive Years of Dividend Growth 3

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Most Recent Balance Sheet Figures

Balance Sheet Information 10/1/2018
Total Current Assets $4,630,344,000
Total Current Liabilities $2,982,182,000
Long-Term Debt $2,902,439,000
Total Assets $13,121,021,000
Intangible Assets $5,538,859,000
Total Liabilities $6,765,133,000
Shares Outstanding (Diluted Average) 265,522,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $5.95
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 $5.13
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

Dollar General Corp Valuation – April 2018 $DG
14 Best Undervalued Stocks of the Week – 8/6/16
Dollar General Corp Valuation – August 2016 $DG
27 Companies in the Spotlight This Week – 4/4/15
Dollar General Corporation Annual Valuation – April 2015 $DG

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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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