Dollar General Pre-earnings Analysis

Dollar General Pre-earnings Analysis

Chart done on daily timeframe. Dollar General enjoyed peak performance when inflation ripped higher and consumers were forced to find bargains, but their glory days became history when consumer optimism returned about the economy. Despite their ability to continuously deliver strong revenue, the company has fallen more than 50% from its all time highs, and this likely can be attributed to their net income inconsistency. DG’s net income fell significantly in Q1 of 2023 and continued to slide through the year, with it the stock fell. The correction they saw brought their price to earnings ratio down to 16, about half of what their most prominent competitor, Walmart, is trading at, but does this make DG a buy going into their next report?

We’re seeing opportunity in the discount store giant because of their ability to constantly grow revenue. Retailers of all sizes have a history of inconsistency when it comes to net income, so DG’s struggle in 2023 shouldn’t be the nail the coffin. While analyzing their balance sheet and cash flow statements, we see the company is currently in healthy standing with a positive asset to liability ratio and free cash flow. DG also pays a dividend to their shareholders, which is a good sign that they’re managing their revenue sufficiently. Quarterly revenue and EPS is expected to rise this quarter, so analysts are optimistic about their results. 

Option chain analysis:

The company is set to report earnings on March 14th, one day ahead of the monthly option expiration. Options expiring on the 15th of March are currently reflecting an implied volatility reading of 62%, which translates to about a $15 move. Retailers don’t often move big on earnings (unless they miss severely) so we’re not surprised to see such a small expectation, especially while most of the attention is on tech stocks. 

Going into these earnings, our outlook is neutral. With EPS estimates set at 1.74, it may be difficult for the discount retailer to meet since they only reported 1.26 last quarter.