Company Information

Dollar General Corporation (DG) is a discount retailer located primarily in the southern, southwestern, midwestern, and eastern United States. The Company provides a broad variety of merchandise, including consumable products such as food, paper and cleaning products, health, beauty, pet supplies, and non-consumables such as seasonal merchandise. With close to 16,000 stores in the United States, Dollar General has been growing, hoping to open more stores with a new brand of higher-end retail called Popshelf. 45% of Dollar General stores are located in the southern US, in rural areas with few other competitive grocery store options. Most stores are small, around 7,300 feet, with a limited selection of carefully chosen products. Dollar General also sells fresh produce, deli, and frozen goods through the new DG Fresh initiative.

Executive Summary

Investment Thesis:

Dollar General is set to undergo strong growth over the next five years, as it has already experienced for the past five years. When the US entered the coronavirus recession, Dollar General experienced growth due to its core constituency of low-income shoppers, who shop at the firm during a recession because they need to buy consumables, as well as a new constituency of middle-income consumers who choose Dollar General due to their low prices and convenient locations in rural areas. We project that Dollar General will grow to $257.00 by the end of 2021, representing a 20% upside, as well as continued growth throughout the next five years.

Investment Merits:

Dollar General has over 16,000 locations throughout the US, especially in rural areas in the south where there are few other options for buying consumables, known as “food deserts.” During a recession, customers continue to shop at these locations because they need to buy food, and middle-income customers begin shopping at Dollar General to save money on groceries. It has started a fresh produce and frozen food initiative called DG Fresh that will help them compete with Amazon and Walmart. It has partnered with FedEx and Western Union to make their stores a center for customers. Furthermore, multiple professional analysts see Dollar General as a buy.

Investment Risks:

Dollar General faces limited price flexibility due to its consumer base of low-income shoppers and middle-income shoppers looking to save money on groceries. The dollar store industry is becoming increasingly competitive and focused on efficiency and productivity due to its maturity. Companies like Amazon and Walmart pose a threat to Dollar General. However Dollar General is in a unique position to overcome competition due to its convenient locations and pricing.

Investment Catalysts:

The recession and earnings reports are the main catalysts for Dollar General’s stock price. When the recession began, the stock price decreased briefly, then began to increase dramatically.

Recommendation:

We recommend that Dollar General is a Buy at its current price due to the recession and the investment merits listed above. Because of our long-term position on the stock, our recommendation will be unaffected by changes in the stock’s price following the upcoming earnings report. However, a potential decrease in price could make the stock more attractive, giving us the opportunity to buy at an even lower price and then wait for a rise in value.