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NEW YORK (TheStreet) -- A lot of investors are going to be taking a second look at the low, low end of retailing today with Dollar Tree's (DLTR) - Get Dollar Tree, Inc. Reportannounced acquisition of Family Dollar (FDO)

Smart investors will ignore the hype and put some more money into Dollar General (DG) - Get Dollar General Corporation Report.

Taken together, Dollar Tree and Family Dollar have quarterly sales of about $2.25 billion, with a little more than $150 million per quarter in net income and about $6.4 billion in assets. Dollar General, by itself, produced more than $4.52 billion in sales for its most recent quarter, with $222.4 million in net income on assets of $10.6 billion.

While Dollar Tree and Family Dollar appear similar -- they both have the word "dollar" in their names -- they are in fact quite different. Dollar Tree is a classic $1 store, with most merchandise priced at about $1. Family Dollar is a low-end general merchandise store, more like Dollar General.

The Deal's Jon Marino and Amanda Levin talk Dollar Tree and Family Dollar:

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If you were in Family Dollar, like Carl Icahn, you're making out like a bandit here. You're getting $59.60 in cash, just about what the shares were trading at Friday, and stock worth $14.90, a premium of 22.8%. But you're probably going to want to dump that stock as soon as you get it, again because of Dollar General.

Family Dollar also admits to being broken. CEO Howard Levine, who has run Family Dollar for a decade, admitted at an April investor conference: "We lost our way." This was followed by Icahn buying 9% of the common stock and demanding a sale. 

So Icahn will make out great in this deal. Will anyone else? I say it will be investors in Dollar General.

On my recent vacation I stopped to see relatives near Limon, Colo., who had a severe complaint for me. They were losing their old Family Dollar. Dollar General had opened up a unit there and blew the Family Dollar away. On another trip, to Mississippi, I found a friend who was driving 10 miles out of her way to shop at a small Dollar General, and avoiding a closer Walmart (WMT) - Get Walmart Inc. Report whenever she could, because it was easier to get in and out.

These may be anecdotes, but the numbers don't lie either. Dollar General is simply a better operator. The stock is also on sale.

Dollar General has been falling in price for the last month, since CEO Rick Dreiling announced his retirement. Dreiling's predecessor, David Perdue, won the Republican nomination for U.S. Senate in Georgia last week. TheStreet still calls Dollar General a buy.

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Dollar General's method for competing with companies like Wal-Mart is to site stores carefully, in small markets that are too small for a Wal-Mart Supercenter, and in urban neighborhoods away from its larger rival, then offer targeted discounts, like a recent deal on diapers.

Given that Family Dollar and Dollar Tree are different, there aren't going to be many synergies in their merger. There will be some in merchandising, and maybe some managers will go away, including CEO Levine, who makes $6.88 million. Mashing together two chains that buy different things and operate in different ways isn't 1+1=3. At best it's 1+1=2. Putting them together will also take time.

That's time Dollar General can use to manage a succession and continue to grow. Its top line should rise nearly 10% this year, and its bottom line should grow as well. Its debt-to-assets ratio of 25% is well in line with industry averages, and it generates more than $1 billion in cash flow each year.

If you like retailers, this is a bargain.

Follow @danablankenhorn

At the time of publication, the author held no positions in any of the stocks mentioned, although positions may change at any time.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

Now let's look at TheStreet Ratings' take on this stock.

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:

"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, growth in earnings per share, increase in net income, notable return on equity and good cash flow from operations. 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:

  • The revenue growth came in higher than the industry average of 6.8%. 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.
  • DOLLAR GENERAL CORP has improved earnings per share by 7.5% 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 $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 S&P 500 and the Multiline Retail industry average. The net income increased by 1.1% when compared to the same quarter one year prior, going from $220.08 million to $222.40 million.
  • 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, DOLLAR GENERAL CORP's return on equity exceeds that of both the industry average and the S&P 500.
  • Net operating cash flow has significantly increased by 70.79% to $251.46 million 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 -79.53%.