NEW YORK (TheStreet) -- Dollar General Corp. (DG) may have to divest more than 4,000 stores in order to gain the Federal Trade Commission's approval for its acquisition of Family Dollar Stores Inc. (FDO) , sources told the New York Post.
Dollar General has said previously that it was willing to sell 1,500 stores in order to gain regulatory approval in order to purchase its competitor.
The $9.1 billion merger is currently stalled as the FTC is concerned the two discount store retailers are mainly in competition with one another and not with other drug stores and supermarkets, sources told the Post.STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12 months. Learn more.
Dollar General submitted papers to the FTC stating rival dollar stores are its main competition, the Post reports.
"The question is whether the [vastly increased] number of divestitures will allow [Dollar General's] deal to work financially," sources told the Post.
It could take up to six months to get the FTC to change its mind regarding which retailers are the company's biggest competition. Dollar Tree wants a vote on the merger by Dec. 31, when its offer for Family Dollar will expire, the Post added.
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:
"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, increase in stock price during the past year, growth in earnings per share, increase in net income and notable return on equity. We feel these strengths outweigh the fact that the company shows weak operating cash flow."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- The revenue growth came in higher than the industry average of 8.9%. Since the same quarter one year prior, revenues slightly increased by 7.5%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
- The stock has risen over the past year as investors have generally rewarded the company for its earnings growth and other positive factors like the ones we have cited in this report. Looking ahead, unless broad bear market conditions prevail, we still see more upside potential for this stock, despite the fact that it has already risen over the past year.
- DOLLAR GENERAL CORP has improved earnings per share by 10.7% 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 ($3.50 versus $3.17).
- The net income growth from the same quarter one year ago has significantly exceeded that of the Multiline Retail industry average, but is less than that of the S&P 500. The net income increased by 2.4% when compared to the same quarter one year prior, going from $245.48 million to $251.26 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.
- You can view the full analysis from the report here: DG Ratings Report