Options Trade – Dollar General Corp. (NYSE:DG) Calls 
Monday, March 09, 2015

**OPTIONS TRADE: Buy the DG May 2015 70.000 call (DG150515C00070000) at or under $3.40, good for the day. Place a protective stop loss at $1.35 and a pre-determined sell at $6.00.

by Ian Harvey

March 09, 2015

Introduction

Dollar General Corp. (NYSE: DG), a discount retailer that offers a selection of merchandise, including consumable products such as food, paper and cleaning products, health and beauty products, pet supplies and tobacco products, and non-consumable products such as seasonal merchandise, home decor and domestics, and basic apparel, is scheduled to release its fourth-quarter results on March 12. The company will announce the results before the market open, with analysts forecasting earnings of $1.17 per share, up from $1.01 during the same period last year. The stock is up 1.6% on the year.

Dollar General has been moving strongly higher over the last six months, despite posting weaker than expected results three out of the last four quarters. Consumer confidence has risen to pre-recession levels, but consumers have also hung on to the hard lessons learned in the recession, and as a result discount retailers have continued to benefit.

Technical Details

Technical indicators for DG are bullish and the stock is in a strong upwards trend. Dollar General has a one year low of $53.00 and a one year high of $73.53. The stock has a 50-day moving average of $69.00 and a 200-day moving average of $66.00.

The company has a market cap of $21.64 billion and a price-to-earnings ratio of 21.34.

Earnings

Dollar General Corp. last issued its quarterly earnings data on Thursday, December 4th. The company reported $0.79 earnings per share for the quarter, missing the analysts’ consensus estimate of $0.80 by $0.01. The company had revenue of $4.72 billion for the quarter, compared to the consensus estimate of $4.76 billion.

During the same quarter last year, the company posted $0.72 earnings per share. Dollar General Corp.’s revenue was up 7.8% compared to the same quarter last year. On average, analysts predict that Dollar General Corp. will post $3.50 earnings per share for the current fiscal year.

Money Inflow

Buyers continued to add to their positions as can be seen from the money flow data in the last session of trading. The net money flow was $17.15 million and the up/down ratio was 1.66. Approximately $43.15 million was the inflow in upticks and $25.99 million was the outflow in downticks. On a weekly measure, the shares have seen a price change of -1.25%. The counter witnessed a block transaction with a net money flow of $16.73 million. The total money in uptick was $19.05 million and in downtick was $2.32 million with the up/down ratio reaching 8.21.

Analysts Opinions

Dollar General Corp. (NYSE:DG) has earned a “BBB-” credit rating from Morningstar. The investment research firm’s “BBB-” rating suggests that the company is a moderate default risk. They also gave their stock a two star rating.

The company has also been the subject of a number of other research reports:-

• Analysts at JPMorgan Chase & Co. reiterated an “overweight” rating and set a $85.00 price target on shares of Dollar General Corp. in a research note on Monday, February 23rd.

• Analysts at Piper Jaffray raised their price target on shares of Dollar General Corp. from $73.00 to $85.00 and gave the company a “buy” rating in a research note on Tuesday, February 17th.

• Analysts at Goldman Sachs initiated coverage on shares of Dollar General Corp. in a research note on Friday, January 30th. They set a “buy” rating and a $67.90 price target on the stock.

• Finally, analysts at Bank of America downgraded shares of Dollar General Corp. to a “sell” rating and set a $60.00 price target on the stock in a research note on Monday, January 26th.

Shares of Dollar General Corp. have been given a consensus rating of “Buy” by the twenty ratings firms that are covering the stock, Analyst Ratings Net reports. One equities research analyst has rated the stock with a sell recommendation, five have issued a hold recommendation and twelve have assigned a buy recommendation to the company. The average 1-year price target among brokerages that have issued a report on the stock in the last year is $74.64.

Conclusion

To gain some insight to Dollar General’s report, a look at Dollar Tree's (DLTR) fourth-quarter numbers, which were reported in late February, can give some balance. DLTR posted better than expected earnings and revenues, and the same is expected from Dollar General. The stock has a P/E of 21, so there is plenty of upside potential, even without an earnings beat, to fulfill this options trade.

Therefore, based on the facts above the following options trade is recommended…..


**OPTIONS TRADE: Buy the DG May 2015 70.000 call (DG150515C00070000) at or under $3.40, good for the day. Place a protective stop loss at $1.35 and a pre-determined sell at $6.00.



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