Earnings and Technical Takes on Discount Retailers Dollar General and Dollar Tree

Discount retailers Dollar General (Ticker Symbol: DG) and Dollar Tree (Ticker Symbol: DLTRWealth Strength IndexAAPL is Extremely Up and trending Up) reported earnings before the open on Thursday.  Dollar Tree reported earnings per share of $1.14, which was right in line with Wall Street analysts’ expectations. First quarter sales reported were a slight beat, coming in at $5.809 billion vs. Wall Street analysts’ expectations of $5.79 billion.  Dollar Tree guided on the low end of its earnings range for the next quarter.

Dollar General reported an earnings per share beat of $1.48 vs. Wall Street analysts’ expectations for $1.39 per share.  Revenue came in at a slight beat at $6.62 billion vs. Wall Street analysts’ expectations of $6.56 billion. Dollar General stated that it expects fiscal 2019 sales to grow by 7% and same-store sales to grow by 2.5%.  Dollar General left its guidance for the year unchanged from last quarter’s earnings release.

Dollar Tree’s stock took off to the races in July of 2017, led by great earnings and good guidance, rallying over 75% in the third and fourth quarters of 2017.  The stock continued to trade to an all-time high of $116.65 on January 31, 2018. Dollar Tree’s stock then proceeded to pull back and consolidate most of 2018, forming a rounded bottom, finding support around the $80.00 price level.  Dollar Tree finally came back to life at the beginning of 2019, breaking above its downtrend it began at its peak in 2018. The stock then reclaimed the 100 and 200-day Moving Averages and started the year off with positive momentum, rallying over 15% in the first three months. Dollar Tree’s stock is currently finding support at its 200-day Moving Average.  

(Chart above courtesy of ​www.tipranks.com​)  

Based on a survey of 15 analysts offering 12-month price targets, the average price target for Dollar Tree’s stock is $110.21.   According to that number, the stock is priced at a discount relative to Wall Street’s analysts and could be considered undervalued around current levels near $98.67.

Dollar General’s stock had a solid start to 2016, rallying 22% in the first three quarters.  The stock took an unfortunate turn to the downside after a negative earnings and guidance release late in the third quarter, that sent Dollar General gaping lower.  Dollar General’s stock spent the next 13 months in a trading range between the $67.00 and the $82.00 dollar price levels. It finally broke out of its range in the third quarter of 2017 and proceeded to rally almost 25%.  Dollar General’s stock found some support at the 200-day Moving Average in the first and second quarters of 2018 while forming a Double Bottom. Traders and investors sometimes look at Double Bottom patterns for a possible pause within the current trend which can, at times, lead to a reversal, as occurred in Dollar General’s case. Dollar General broke out from that pattern higher, rallying over 20%.  The stock traded to an all-time high, today, on May 30th, 2019 at $127.56.

(Chart above courtesy of ​www.tipranks.com​)  

Based on a survey of 16 analysts offering 12-month price targets, the average price target for Dollar General’s stock is $129.00. According to that number, the stock is priced at a discount relative to Wall Street’s analysts and could be considered undervalued around current levels near $126.90.

Dollar General and Dollar Tree both get the majority of their products from China and elsewhere overseas. The tariffs currently in place are hindering both companies from reaching their earnings potential. Despite this, both companies were still able to put together decent quarterly earnings. Investors should be looking for a completion of the U.S.-China trade deal for big moves on both companies’ stock prices.  

 


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