What's Happening
Discount retailer Dollar General ( DG ) will report its fourth-quarter results before the market open on March 15. The consensus calls for earnings of $1.48 per share, down a penny from the same period last year. DG shares are down 8.6% on the year.
Technical Analysis
DG was recently trading at $85.95, down $19.87 from its 12-month high and $19.98 above its 12-month low. Technical indicators for DG are bearish with a downward trend. The stock has recent support above $85.50 and recent resistance below $97.50. Of the 18 analysts who cover the stock, nine rate it a "strong buy", two rate it a "buy", and seven rate it a "hold". DG gets a score of 54 from InvestorsObserver's Stock Score Report.
Analyst's Thoughts
Dollar General stock sold off with the rest of the market in February, but shares had found some solid support before its main competitor, Dollar Tree ( DLTR ) disappointed with its quarterly report on March 7. DLTR missed on the top and bottom lines, driving the stock lower, and pulling DG shares lower in sympathy. The good news for investors is that the DG's selloff following the DLTR report has already been priced in, so barring a huge earnings miss, the downside is likely limited at this time. However, if Dollar General is able to post a positive earnings surprise, there is a lot of upside, and shares should quickly erase the losses taken following the DLTR quarterly report. DG missed its profit number last quarter, but sales were higher and investors focused on the sales beat and pushed the stock higher despite the slightly weaker than expected profit number. With the recent sell off, the stock currently has a trailing P/E of 19.0, so do not look for a huge dip in price even if earnings do come in a penny or two under the consensus. Wall Street expects the company to show a positive earnings surprise, with a whisper number of $1.49, a penny above the consensus.
Stock Only Trade
If you're looking to establish a long stock position in DG, consider buying the stock under $86.00. Sell if it falls below $77.50 or take profits if it gets to $99.00.Bullish Trade
If you want a bullish hedged trade on the stock, consider an April 70/75 bull-put credit spread for a 25-cent credit. That's a potential 5.3% return (45.8% annualized*) and the stock would have to fall 12.5% to cause a problem.
Bearish Trade
If you want to take a bearish stance on the stock at this time, consider an April 95/100 bear-call credit spread for a $0.30 credit. That's a potential 6.4% return (55.5% annualized*) and the stock would have to rise 10.9% to cause a problem.
Covered Call Trade
If you like the stock, but wish to lower your cost basis on a new position, you may want to consider an April $87.50 covered call. Buy DG shares (typically 100 shares, scale as appropriate), while selling the April $87.50 call for a debit of $82.40 per share. The trade has a target assigned return of 6.1%, and a target annualized return of 54.6% (for comparison purposes only).The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Originally published on InvestorsObserver.com
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.