Why Dollar General Will Continue 10% Growth Despite Poor Weather

| About: Dollar General (DG)

Dollar General Corp. (NYSE:DG) is set to report FQ4 2014 earnings before the market opens on Thursday, March 13th. Dollar General's peer Dollar Tree reported FQ4'14 earnings on Wednesday February 26th, and came up short of the Estimize consensus on both EPS and revenue. The recurring theme of harsh weather and a challenging retail environment will also hinder Dollar General this quarter. On the positive side Dollar General has reported double digit year over year sales and profit growth over 2 consecutive quarters. This quarter Wall Street is expecting 9.7% yoy revenue growth and 6.3% EPS growth while the buy side has much loftier expectations. Here's what investors expect from Dollar General Thursday morning.

The information below is derived from data submitted to the Estimize.com platform by a set of Buy Side and Independent analyst contributors.image

(Click Here to see Estimates and Interactive Features for Dollar General)

The current Wall Street consensus expectation is for DG to report $1.01 EPS and $4.616B revenue, while the current Estimize.com consensus from Buy Side and Independent contributing analysts is $1.07 EPS and $4.684B in revenue. This quarter the buy-side as represented by the Estimize.com community is expecting Dollar General to beat the Wall Street consensus on both EPS and revenue.

By tapping into a wider range of contributors including hedge-fund analysts, asset managers, independent research shops, students, and non professional investors Estimize has created a data set that is more accurate than Wall Street up to 69.5% of the time, but more importantly it does a better job of representing the market's actual expectations. It has been confirmed by an independent academic study from Rice University that stock prices tend to react with a more strongly associated degree to the expectation benchmark from Estimize than from the Wall Street consensus.

The magnitude of the difference between the Wall Street and Estimize consensus numbers often identifies opportunities to take advantage of expectations that may not have been priced into the market. In this case we are seeing a moderate to large difference between the 2 groups' expectations.image

The distribution of estimates published by analysts on the Estimize.com platform range from $1.02 to $1.23 EPS and from $4.621B to $5.080B in revenues. This quarter we're seeing a moderate distribution of estimates on DG.

The size of the distribution of estimates relative to previous quarters often signals whether or not the market is confident that it has priced in the expected earnings already. A wider distribution of estimates signaling less agreement in the market, which could mean greater volatility post earnings. image

Over the past 4 months the Wall Street EPS consensus dipped from $1.05 to $1.01, while the Estimize consensus slipped late in the quarter from $1.10 to $1.07. Meanwhile the Wall Street revenue forecast decreased from $4.691B to $4.616B while the Estimize forecast plummetted right before the report from $4.782B to $4.684B. Timeliness is correlated with accuracy and downward analyst revisions at the end of the quarter are often a bearish indicator.image

The analyst with the highest estimate confidence rating this quarter is JohnBonini, who projects $1.05 EPS and $4.635B in revenue. In the Winter 2014 season JohnBonini is rated as the 38th best analyst and is ranked 63rd overall among over 3,950 contributing analysts. This season JohnBonini has been more accurate than the Street in forecasting EPS and revenue 52% of the time each. Estimate confidence ratings are calculated through algorithms developed by deep quantitative research which looks at correlations between analyst track records and tendencies as they relate to future accuracy. In this case JohnBonini is making a bearish call, expecting Dollar General to miss the Estimize consensus on both profit and sales.

This winter retailers have faced a challenging sales environment and expectations for DG from both Wall Street and the Estimize community have fallen correspondingly. However, Dollar General has displayed strong growth in each of the previous 2 quarters and contributing analysts on the Estimize.com platform are expecting DG to continue its run and beat the Street's expectations on both the top and bottom line.

Disclosure: None