Option Trade 
Dollar General Corp. (NYSE:DG) Calls 
Tuesday, November 29, 2016

** OPTION TRADE: Buy the DG JAN 20 2017 80.000 call at approximately $2.80. Place a pre-determined sell at $5.60.

Note: No protective stop losses added -- but if you wish to do so make it $1.15.

by Ian Harvey

Tuesday, November 29, 2016

Dollar General Corp. (NYSE:DG), a discount retailer, will report Q3 results December 1. The company will announce its quarterly numbers before the market open, with the consensus calling for earnings of $0.93 per share, on revenue of $5.37 billion. During the same period last year the company earned $0.86 on sales of $5.07 billion.

Dollar General was among the stocks to rally following the presidential election. The stock has risen 14.1% since Trump’s surprising victory. Despite the strong upward move, the stock’s valuation remains OK, with a P/E of just 18.6, and earnings forecast to rise 13.4% this year, and 8.2% next year.

In August, the stock took a major hit after the company posted weaker-than-expected second-quarter results, but analysts do not expect to see another miss this quarter. The street has a slightly higher whisper number of $0.94, a penny above the consensus.

With Trump winning the presidency and Republicans now in control of both houses of Congress, the expectation is for improvements in the overall economy, which will likely benefit all retailers, and is the primary reason why shares of DG have made such an impressive gain since election night.

DG shares have risen 10.7% on the year.

Dollar General Corp. has a market cap of $22.46 billion, a price-to-earnings ratio of 18.64 and a beta of 0.80. Dollar General Corp. has a 52 week low of $64.10 and a 52 week high of $96.88.

Why Dollar General?

Headquartered in Tennessee, Dollar General is one of the largest discount retailers in the United States. As of August 2016, the company operated about 13,000 stores in 43 US states.

Dollar General Corporation traded on unusually high volume on Nov. 28, as the stock lost 1.75% to close at $78.66. On the day, Dollar General Corporation saw 4.35 million shares change hands on 37,768 trades. Considering that the stock averages only a daily volume of 2.79 million shares a day over the last month, this represents a pretty significant bump in volume over the norm.

Generally speaking, when a stock experiences a sudden spike in trading volume, it may be seen as a bullish signal for investors. An increase in volume means more market awareness for the company, potentially setting up a more meaningful move in stock price. The added volume also provides a level of support and stability for price advances.

Director Michael M. Calbert purchased 13,000 shares of Dollar General Corp. stock in a transaction dated Tuesday, August 30th. The stock was bought at an average price of $75.53 per share, for a total transaction of $981,890.00.

Also, hedge funds and other institutional investors have recently added to the stock…..

  • Pacer Advisors Inc. boosted its position in Dollar General Corp. by 7.8% in the second quarter.
  • Financial Architects Inc. boosted its position in Dollar General Corp. by 390.7% in the third quarter.
  •  FTB Advisors Inc. boosted its position in Dollar General Corp. by 14.9% in the third quarter.
  • Global X Management Co. LLC boosted its position in Dollar General Corp. by 114.2% in the third quarter.
  • Finally, Alpha Windward LLC boosted its position in Dollar General Corp. by 1.5% in the third quarter.

Analyst Input

Dollar General Corp. was upgraded by Zacks Investment Research from a “sell” rating to a “hold” rating in a report released last Tuesday.

According to Zacks, “Soft comparable sales performance on account of deflation in retail food priceacross perishable items, fall in both SNAP participation rates and benefit levels, unseasonably mild spring weather and stiff competition have hurt Dollar General’s performance in second-quarter fiscal 2016. As a result, it posted a negative earnings surprise, after beating the Zacks Consensus Estimate in the trailing five quarters. Net sales also missed the estimate for the 12th straight quarter. However, what came as a respite was the year-over-year growth in both the top and bottom lines. We believe Dollar General’s commitment toward better price management, merchandise, cost containment and operational initiatives bode well. Dollar General’s model includes earnings per share annual growth target of 10–15% and net sales increase of 7–10%. Of late estimates have been stable ahead of the third quarter earnings release.”

Several other research firms have also issued reports on DG…..

  • Deutsche Bank AG lowered shares of Dollar General Corp. from a “buy” rating to a “hold” rating and raised their price target for the stock from $95.00 to $99.00 in a research report on Monday, August 1st. They noted that the move was a valuation call.
  • Jefferies Group lowered shares of Dollar General Corp. from a “buy” rating to a “hold” rating and decreased their price target for the stock from $101.00 to $96.00 in a research report on Monday, August 15th. They noted that the move was a valuation call.
  • KeyCorp began coverage on shares of Dollar General Corp. in a report on Wednesday, October 12th. They set a “sector weight” rating on the stock.
  • MKM Partners restated a “buy” rating and issued a $97.00 price target on shares of Dollar General Corp. in a research report on Thursday, August 25th.
  • Finally, Macquarie decreased their price target on shares of Dollar General Corp. from $98.00 to $92.00 and set an “outperform” rating on the stock in a research report on Thursday, August 25th.

One investment analyst has rated the stock with a sell rating, twelve have issued a hold rating, fifteen have issued a buy rating and one has issued a strong buy rating to the company’s stock. The company presently has an average rating of “Buy” and a consensus target price of $89.36.

 Harvey’s Options Volatility Indicator

Conclusion

If Dollar General is able to top estimates, there is upside based on the current valuation and general bullishness on retailers.

Therefore, based on the facts above, and Harvey’s Options Volatility Indicator, the following option trade is recommended…..

** OPTION TRADE: Buy the DG JAN 20 2017 80.000 call at approximately $2.80. Place a pre-determined sell at $5.60.

Note: No protective stop losses added -- but if you wish to do so make it $1.15.

”Success is simple. Do what's right, the right way, at the right time.”

Option Tip for your Success!

Options traders are not successful because they win.

Options traders win because they are successful.

Back to Stock Options Made Easy Home Page

Back to Option Trades from Option Trade -- Dollar General Corp. (NYSE:DG) Calls - Tuesday, November 29, 2016



Get all the latest options news from
STOCK OPTIONS MADE EASY with our FREE newsletter


Enter Your Email Address

Enter Your First Name









Search Stock Options
Made Easy



Enjoy Relaxed or Fast-Paced Trading? Choose your Membership Style...

Whether you prefer to take a laid-back approach to your trading,

or to charge ahead in your options trading,

 Stock Options Made Easy Armchair Trader and Cut-to-the-Chase Trader Memberships put everything you need to succeed at your fingertips for just  $39 or $79 per month.






Subscribe to our FREE
newsletter for all the latest options news!


Enter Your Email Address

Enter Your First Name











Follow S_O_M_E on Twitter