Dollar General Corporation Stock Buy Recommendation Reiterated (DG)

NEW YORK (TheStreet) -- Dollar General Corporation (NYSE:DG) has been reiterated by TheStreet Ratings as a buy with a ratings score of B. The company's strengths can be seen in multiple areas, such as its revenue growth, impressive record of earnings per share growth, compelling growth in net income, largely solid financial position with reasonable debt levels by most measures and notable return on equity. We feel these strengths outweigh the fact that the company is trading at a premium valuation based on our review of its current price compared to such things as earnings and book value.

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Highlights from the ratings report include:

• The revenue growth came in higher than the industry average of 1.5%. Since the same quarter one year prior, revenues rose by 13.0%. Growth in the company's revenue appears to have helped boost the earnings per share.
• DOLLAR GENERAL CORP has improved earnings per share by 40.0% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, DOLLAR GENERAL CORP increased its bottom line by earning $2.22 versus $1.81 in the prior year. This year, the market expects an improvement in earnings ($2.81 versus $2.22).
• The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Multiline Retail industry. The net income increased by 36.0% when compared to the same quarter one year prior, rising from $156.97 million to $213.42 million.
• The debt-to-equity ratio is somewhat low, currently at 0.63, and is less than that of the industry average, implying that there has been a relatively successful effort in the management of debt levels. Even though the company has a strong debt-to-equity ratio, the quick ratio of 0.10 is very weak and demonstrates a lack of ability to pay short-term obligations.
• The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. Compared to other companies in the Multiline Retail industry and the overall market on the basis of return on equity, DOLLAR GENERAL CORP has underperformed in comparison with the industry average, but has exceeded that of the S&P 500.

Dollar General Corporation operates as a discount retailer primarily in the southern, southwestern, midwestern, and eastern United States. The company has a P/E ratio of 21.8, equal to the average retail industry P/E ratioand above the S&P 500 P/E ratio of 17.7. Dollar General has a market cap of $17.38 billion and is part of the services sector and retail industry. Shares are up 27.2% year to date as of the close of trading on Friday.

You can view the full Dollar General Ratings Report or get investment ideas from our investment research center.

--Written by a member of TheStreet Ratings Staff.

TheStreet ratings do not represent the views of TheStreet's staff or its contributors. Ratings are established by computer based on metrics for performance (which includes growth, stock performance, efficiency and valuation) and risk (volatility and solvency). Companies with poor cash flow or high debt levels tend to earn lower ratings in our model.

 

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