For Dollar General Corp. (ticker: DG), 2016 must seem so, so long ago. In July of last year, DG shares hit an all-time high near $97 per share, capping a nearly 60 percent rebound from a late 2015 trench.
There was even wealth to go around in the dollar store space, as rival Dollar Tree ( DLTR) was making its own all-time highs, powered by its 2014 purchase of Family Dollar.
Fast-forward to today, and Dollar General shares are off 25 percent from those peaks, seemingly unable to gain any real traction thanks to disappointments across a pair of quarterly reports.
[See: 7 of the Best Stocks to Buy for 2017.]
With Dollar General set to unveil its fourth-quarter and full-year results before the bell Thursday, the question is whether DG can start a new run toward its 2016 peak, or if the stock’s listlessness will continue.
The headline numbers. For its fourth quarter, analysts are expecting a 9 percent improvement in earnings to $1.42 per share, and revenue growth of 13 percent to $5.97 billion.
Dollar General’s recent history has been spotty on the earnings front, with the company beating profit expectations just five times in the past three years’ worth of quarterly reports.
That includes a pair of misses in the last two quarters, thanks at least in some part to Wal-Mart Stores ( WMT).
Is Wal-Mart still winning? Dollar General’s slump began with a 17 percent dive in late August 2016, after DG let down the analyst community with its second-quarter report. Sales of $5.39 billion were 5.8 percent better than the previous year, but they were shy of expectations for $5.5 billion thanks in large part to a mere 0.7 percent uptick in comparable-store sales.
DG wasn’t alone, though. Dollar Tree’s revenues of $5 billion, while up 66 percent (thanks to the FDO buyout), also missed the Street’s mark for $5.09 billion, forcing the company to lower its full-year sales forecast.
The culprit? Wal-Mart went on the offensive during the quarter, slashing prices in a few key areas, including groceries, among other store-improving initiatives. And they worked — WMT grew comps by 1.6 percent, its biggest gain in that metric since the second quarter of 2012.
Wal-Mart again bit into Dollar General when the third quarter rolled around, as DG was forced to lower its outlook amid a marginal decline in comps and another revenue miss.
DG shareholders should be concerned, then, that Wal-Mart’s U.S. comparable sales grew another 1.8 percent in the fourth quarter, primarily driven by a traffic increase of 1.4 percent, in what has been a fairly lousy season for the rest of the retail sector. There’s also no comfort in Dollar Tree’s 1.2 percent comps gain in the quarter, which was shy of expectations for 1.8 percent.
A Dollar General buyout? If Dollar General longs wanted a little comfort, they could look to the fact that the long-term bull story is still playing out. America’s economic recovery, while existent, is far from robust, and the middle class is still thinning out, which means plenty of continued opportunity for Dollar General and other discount retailers.
They could also look to Bernstein, which last month maintained its “outperform” rating on DG shares thanks in part to their value. That still holds true now, as Dollar General’s declines have knocked the forward price-to-earnings ratio from the low 20s to less than 16 at current prices.
[See: 7 ETFs That Allow You to Invest in Space.]
But perhaps the most interesting part of that report is the suggestion that Dollar General would be an attractive buyout target for none other than Amazon.com ( AMZN).
Cowen & Co. in early February kicked around the idea that Amazon should buy struggling Macy’s ( M), saying the deal “could address some of (Amazon’s) major consumer pain points” including better brands and physical locations for returns.
However, Bernstein’s Brandon Fletcher argued the case that Dollar General would make an ideal target because it could get Amazon out into the country: “The most powerful element of this combination is that the core strategy of price and convenience is a defensible one and the location of most of the growth is defensible. Being a rural retailer has serious advantages when the dominate disruptor is primarily urban.”
Naturally, right now, this qualifies as nothing more than rampant speculation. Amazon would need to shell out nearly $20 billion to buy DG even without a premium, and AMZN isn’t known for big acquisitions — its biggest deal ever was for Zappos, which closed in 2009 for $1.2 billion.
Instead, the odds favor a much more sobering reality for DG: another lackluster quarter and middling price movement.
More earnings in focus
Oracle Corp. (ORCL). Oracle has put together an 11 percent run in 2017, and at under $43, is starting to close in on multiyear highs near the $46 mark set in late 2014. Its next hurdle — or accomplice — will be fiscal third-quarter earnings on Wednesday after the bell. The bar is set nice and low for ORCL, with analysts expecting a 3 percent decline in earnings to 62 cents per share, and a less-than-3 percent dip in revenues to $9.25 billion. Cowen & Co. analyst J. Derrick Wood reiterated the firm’s “outperform” ranking on ORCL, but the optimism had more to do with an “EPS inflection point” it expects Oracle to hit in fiscal year 2018.
Tiffany & Co. (TIF). Tiffany’s usual Friday morning report late in the earnings season is on deck yet again, and no one is expecting much. Analysts see earnings dipping roughly 5 percent to $1.39 per share on revenues that will merely ooze forward just 0.3 percent to $1.22 billion. TIF shares have performed admirably this year, up nearly 15 percent to more than double the broader market. Much of that has come in the wake of the sudden departure of CEO Frederic Cumenal in February — one of several drivers (including “lack of visibility in the U.S.” and “macro volatility in APAC and Europe) that prompted Mizuho to lower its price target on TIF shares at the time.
This week’s earnings calendar
Monday. Del Taco Restaurants ( TACO), Jamba ( JMBA), Tilly’s ( TLYS)
Tuesday. DSW ( DSW), Hostess Brands ( TWNK)
Wednesday. Guess? ( GES), Inovio Pharmaceuticals ( INO), Jabil Circuit ( JBL), Williams-Sonoma ( WSM)
[See: The 25 Best Blue-Chip Stocks to Buy for 2017.]
Thursday. Insys Therapeutics ( INSY), Perrigo Co. ( PRGO), Adobe Systems ( ADBE), ExOne Co. ( XONE), Vivint Solar ( VSLR)
More from U.S. News
7 Dividend Stocks to Benefit From Trump Tax Changes
6 Things to Know About Mark Zuckerberg’s Manifesto
10 Important Investments Before Having a Baby
Dollar General Corp. (DG): Will Wall Street Keep Slashing Prices? originally appeared on usnews.com
