This Time Tomorrow: $DG Fiscal Q1 Earnings

by Dan June 3, 2013 3:11 pm • Commentary

Event:  DG reports their fiscal Q1 tomorrow prior to the open.  The options market is implying about a 4.5% move which is rich to the 4 qtr avg move of about 3.5% and the 8 qtr avg move of about 3.75%.  

Price Action / Sentiment:   Both DG and DLTR up about 21% ytd, while nearly doubling the return of WMT, they both under-perform the XRT by a few %.

Wall Street analysts are fairly positive on the stock with 19 Buys, 7 Holds and only 1 Sell with an avg 12 month price target of ~$59.50.

Options Open Interest:  OI is heavily skewed towards calls with 62k of the 80k…..the largest single open lines are 16k of the Aug 50 calls, 9700 of the Aug 52.50 calls, 6300 of the Aug 57.50 calls and 5900 of the June 55 calls.

Technicals:   DG and DLTR have tracked each-other’s performance fairly closely over the last 2 years, as the chart below shows how closely correlated they were for most of 2011 and half of 2012 until a miss and guide down by DLTR.

[caption id="attachment_26540" align="aligncenter" width="589"]DG vs DLTR 2 yr chart from Bloomberg DG vs DLTR 2 yr chart from Bloomberg[/caption]

The five year chart below shows the potential for a massive long term double top to have just been formed as the stock recently approached the previous highs.

[caption id="attachment_26542" align="aligncenter" width="589"]DG 5 yr chart from Bloomberg DG 5 yr chart from Bloomberg[/caption]


Bloomberg Estimates:

  • 1Q adj. EPS est. 71c (range 69c-73c)
  • 1Q rev. est. $4.24b ($4.19b-$4.29b)
  • 1Q comp sales est. up 2.75% (12 ests.)
  • FY14 adj. EPS est. $3.28 vs co. forecast $3.15-$3.30 in March
  • FY14 rev. est. up 10% to $17.69b vs March forecast up 10%-12%
  • DG forecast yr comps up 4%-6%

So What Will We Know Tomorrow?  Given recent results from DLTR, WMT & TGT my sense is that there will be few surprises to the upside, and in my mind the downside risk of a gap on a disappointment outweighs the potential for a new high made on a beat and raise.  DG trades at 16x 2014 earnings that are only expected to grow 13%. I would prefer to own WMT which is expected to grow in the mid single digits, but pays a 2.5% dividend yield and is  down 5% from its recent highs.