In the rough and tumble world of discount retailing, there are only three major players. We are, of course, talking about Dollar General Stores, Dollar Tree, and Family Dollar Stores. There has been a lot of analyst concern about Dollar General Stores (NYSE:DG) because it was unable to disrupt the merger between its two biggest rivals Dollar Tree and Family Dollar Stores. Also, this company’s stock has been under a lot of downward pressure due to its recent announcement that the year 2015 will be a lackluster year for the company. It is forecasting its earnings to be around $3.85 to $3.95 per share. The average analyst expectation for the same time period, which is from January 2015 to January 2016, is around $3.99 per share. This is partly due to the fact that the company is looking to expand massively in 2015.
The company is planning to open around 730 stores. These expansion plans will set back the company by around $550 million to half a billion dollars. Also, expect the stock to be under a bit of pressure because it will no longer be the top discount retailer in America. Due to the successful merger of Dollar Tree (NASDAQ:DLTR) and Family Dollar Stores, it will be the number two player in this space.
Discount retailing is a great industry considering the fact that the US economy is still improving. It isn’t completely out of the woods yet. Moreover, in many of the local markets served by Dollar General, the economic recovery hasn’t fully arrived. As a result, expect a decent demand for Dollar General Stores’ offerings in such markets. Due to these factors and the sound fundamental strength of this company, as well as healthy sales growth expectations of 8%-9%, this stock is a solid buy.
