Dollar General Moves Up On Strong Outlook, Institutions Are Buying
Dollar General (NYSE: DG) shares have not been immune to market malaise but those sad days are behind us. The company’s stock began reversing from a bottom days before the Q4 earnings were released and now they are rocketing higher in a very well pronounced Vee-bottom. The bottom is driven not only by results but by analyst sentiment and institutional buying so we see this move as one with true momentum. While price action may face resistance as it moves higher, it is our opinion this stock is on track to set a new all-time high and will probably hit those levels well before the next reporting season.
There are 17 analysts covering Dollar General and at least 7 have issued commentary in the wake of the earnings release. The activity is as mixed as the results but ultimately bullish, just like the results. Of the seven we’ve got 4 boosting their price targets, 2 lowering, and 1 reiterating for a narrow consensus of $252. This is worth about 10% of upside for the stock and puts price action at a new all-time high. It also compares favorably to the broader Pricetargets.com consensus of $242.60 which is only 5.7% above the recent price action. The broad consensus is up in the 12-month and 30-day comparison which suggests sentiment is strengthening once again.
As for the institutions, the institutions have been steadily buying this stock over the past 5 quarters. The net of buying for the last 12 months is worth about 6.5% of the market cap and has total ownership up to nearly 91% and growing.
Dollar General Moves Up On Mixed Results
Dollar General had mixed results but only in respect to the analyst's consensus and there is the guidance to consider as well. While the revenue and earnings fell short by a very slim margin the guidance more than makes up the difference. The revenue came in at $8.65 billion and missed by a narrow 70 basis points while earnings of $2.57 missed by a penny. The salient point, we believe, is that revenue is up 2.9% from last year, earnings are up as well, and the guidance is well above the consensus. The company is looking for revenue growth of 10% compared to the Pricetargets.com consensus of 7.36% with similar strength expected on the bottom line.
The sentiment was also boosted by the capital return program which included a very healthy dividend increase as well as plans to repurchase $2.75 billion shares. The repurchase program is worth about 5.2% of the market cap with shares trading near $230 while the dividend increase is worth about 31% to shareholders. The dividend is reasonably safe as well with a payout ratio in the mid-teens and there are no red flags on the balance sheet, it is a near-fortress if not a fortress.
The Technical Outlook: Dollar General Is Moving Higher
Shares of Dollar General rocketed higher in the wake of the earnings report and are on track to retest resistance at the current all-time high near $240. The stock is bouncing higher from a support level well above the last major bounce in price action and indicators are in line with upward movement. MACD is still in bear territory but it is in retreat and on track for a bullish crossover that has already been fired by the stochastic. If price action can get above resistance at $240 a move up to $252 should be easy, our target is closer to $280.
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