** 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…..
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…..
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
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.
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