Thursday, June 14, 2012

Dollar General Is a Bit Too Pricey

Dollar General (NYSE:DG) — The Trade of the Day first recommended buying this leading U.S. discount retailer on Sept. 29, 2011, with the stock at $38. Since then, DG has exceeded our initial target of $44, and yesterday closed over $50.

Its superb advance is a result of its defensive qualities in a weak economy. With low operating margins and a strong cash flow, earnings are expected to top $2.82 in 2013, up from $2.22 in 2011.

Even though it continues to exceed analysts’ estimates by reporting Q1 earnings of 63 cents versus an expected 48 cents, it is technically overbought. By breaking above its well-defined bullish channel, it is overpriced and due for a pullback. Also, note the overbought MACD.

Fundamental analysts’ consensus target is $55, and our technical target is $58. The buy under price is at its 50-day moving average at $47.

Trade of the Day – Dollar General (NYSE:DG)

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