Is Dollar General a Coronavirus-Resistant Stock?
On February 19, 2020, the S&P 500 Stock Index, a key index in the broad U.S. stock market, reached an all-time peak of 3386 points. As the coronavirus began to spread throughout the world, stock markets everywhere began to drop. Stock market investors hate uncertainty and began to sell. By March 23, the S&P 500 Index had reached a near term bottom of 2237 points, which was a 34 percent drop, one of the sharpest drops in the history of the stock market.
As with any major disruption in the world markets, most companies will suffer loses from the destruction of demand, such as oil companies, while other companies, such as retailers and pharmaceutical companies, will see an increase in demand. The Dollar General Corporation, a household retailer with over 1,600 locations throughout the country, appears to be one of the companies that is set for growth through the pandemic.
In this article, I present some information that would indicate that Dollar General is set to prosper during the pandemic crisis, resulting in an increase of the stock price.
Dollar General Company Profile
Dollar General Corporation is a discount retailer that has retail locations throughout much of the United States offering a variety of household products. Their stores are clustered in the southern southwestern, midwestern, and eastern United States. The company offers consumer products including paper towels, bath tissues, paper dinnerware, trash and storage bags, laundry and other household cleaning supplies as well as a wide assortment of food items and necessities for the home. As of November 2019, the company operated 16,094 stores in 44 states. The company was formed in 1968, being formally known as J.L. Turner & Son, Inc.
Stock Price Movement
The large price drop from in late February until late March is due to the outbreak of the coronavirus. As of April 7, the 52 week high for the stock was $170.82 with a 52 week low of $116.15. Since early April, the price has shown a nice upward movement. The year-to-date price increase of the stock is 8.6 %, whereas, the Dow Jones Industrial Average (DJIA) has dropped over 20 % since the beginning of 2020.
Key Stock Statistics
Dollar General (DG) has a large market capitalization of $42.6 billion. The massive volume of this stock traded each day makes DG stock very liquid with a small bid-ask spread, implying a trader or investor can get in or out of their stock position rapidly.
The Price-to-Earnings (P/E) is 25.5, which is in-line with other major retailers like Walmart (P/E=23.5) and Target (P/E=15.5). A lower P/E is favorable, normally meaning the stock is favorably priced to the amount of earnings the company generates.
The Earning-Per-Share (EPS) is calculated by dividing the company’s profit by the number of outstanding shares of its common stock. A high EPS is better. For DG the EPS=6.64. This is higher than both Walmart and Target.
Another important factor when evaluating a company is the Debt-to-Equity (D/E) ratio. This is calculated by dividing a company’s total liabilities by its shareholder equity. This number is a measure of the degree to which a company is financing its operations through debt versus wholly-owned funds, a lower number is better. Dollar General’s D/E=43.4%. This is lower than both Walmart and Target. During these perilous economic times, companies with a lower debt will tend to fare better.
The dividend yield is 0.85 %. Walmart pays annual dividend of 2.58 % and Target pay annual dividend of 2.77 %. The dividend yield for Dollar General is smaller than the two comparable companies and is lower than the S&P 500 which has dividend yield of 2.1 %.
Dollar General has added around one thousand stores annually over the last few years. The company, which took in revenue of $27.8 billion in 2019, expects net sales growth of over 7% in 2020, as well as an increase of 2.5% to 3% for comparable store sales.
What the Analysts Think About Dollar General Stock
Of the 30 stock analysts following the stock as reported on Yahoo/finance, 28 of them give the stock a rating of hold, buy, or strong buy. While only two give a sell rating for the stock. The analyst consensus on the future high price is $190, which is a nice profit from the current $167 price. On March 31, Wells Fargo upgraded Dollar General’s stock from “equal weight” to “overweight,” stating the discount retailer is the “best stock in the consumer arsenal” if coronavirus leads to more economic hardship.
Yahoo Finance https://finance.yahoo.com/
Dollar General Corporation Investor Relations https://investor.dollargeneral.com/websites/dollargeneral/English/0/investor-relations.html
Wahba, Phil. “Why Dollar General thinks coronavirus can help business” Fortune. March 12, 2020. https://fortune.com/2020/03/12/dollar-general-2020-coronavirus/
This article is accurate and true to the best of the author’s knowledge. Content is for informational or entertainment purposes only and does not substitute for personal counsel or professional advice in business, financial, legal, or technical matters.
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© 2020 Doug West