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:
Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?
|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
|MG Growth Estimate||10.68%|
|MG Value based on 3% Growth||$74.39|
|MG Value based on 0% Growth||$43.61|
|Market Implied Growth Rate||7.09%|
|% 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|
|Number of Consecutive Years of Dividend Growth||3|
|ModernGraham tagged articles||Morningstar|
|Google Finance||MSN Money|
|Yahoo Finance||Seeking Alpha|
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|
|Shares Outstanding (Diluted Average)||265,522,000|
Earnings Per Share History
|Next Fiscal Year Estimate||$5.95|
Earnings Per Share – ModernGraham History
|Next Fiscal Year Estimate||$5.13|
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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.