The firm said it lowered its rating on the discount retail chain as the company has limited earnings upside potential.
"We don't see much in the way of positive catalysts on the horizon, leaving shares likely range bound for the foreseeable future," Sterne Agee said.
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"We rate DOLLAR GENERAL CORP (DG) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its revenue growth, good cash flow from operations, growth in earnings per share, increase in net income and largely solid financial position with reasonable debt levels by most measures. We feel these strengths outweigh the fact that the company shows low profit margins."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
Separately, TheStreet Ratings team rates DOLLAR GENERAL CORP as a Buy with a ratings score of A-. TheStreet Ratings Team has this to say about their recommendation:
- The revenue growth came in higher than the industry average of 8.4%. Since the same quarter one year prior, revenues slightly increased by 6.8%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
- Net operating cash flow has slightly increased to $452.49 million or 2.72% when compared to the same quarter last year. In addition, DOLLAR GENERAL CORP has also vastly surpassed the industry average cash flow growth rate of -76.97%.
- DOLLAR GENERAL CORP's earnings per share improvement from the most recent quarter was slightly positive. 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 $3.17 versus $2.86 in the prior year. This year, the market expects an improvement in earnings ($3.51 versus $3.17).
- The net income growth from the same quarter one year ago has exceeded that of the Multiline Retail industry average, but is less than that of the S&P 500. The net income increased by 1.5% when compared to the same quarter one year prior, going from $317.42 million to $322.17 million.
- The current debt-to-equity ratio, 0.52, is low and is below the industry average, implying that there has been successful management of debt levels. Even though the company has a strong debt-to-equity ratio, the quick ratio of 0.28 is very weak and demonstrates a lack of ability to pay short-term obligations.
- You can view the full analysis from the report here: DG Ratings Report
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