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How To Value A Company Like Dollar General Corp. (DG)

Growing up in a small town in Ohio, I remember being able to ride my bike to the nearest Dollar General Corp. (NYSE:DG) store. In fact, I rode that route many times in my youth. Q3 2020 hedge fund letters, conferences and more During her bi-weekly grocery

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Dollar General Corp

Growing up in a small town in Ohio, I remember being able to ride my bike to the nearest Dollar General Corp. (NYSE:DG) store. In fact, I rode that route many times in my youth.

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Q3 2020 hedge fund letters, conferences and more

During her bi-weekly grocery shopping trips, my Mother would sometimes forget to grab a small consumable item, like toothpaste for example. Instead of driving 20 minutes to the nearest Kroger, she would send her son on the important mission for dental hygiene.

Another routine deployment of mine would be when a birthday, wedding, or other important event occurred. I was sent to fetch a card for $1.00 that we could quickly sign, stamp, and throw in the mailbox. Crisis averted!

This kind of convenience and simplicity is a business model that allowed me to save the day many times over for my family. But how does Dollar General’s business model translate for shareholders?

Dollar General Corp's Business Breakdown

This post is in collaboration with friend and fellow blogger Thomas Chua at Steady Compounding. Check out his breakdown of Dollar General’s business model and operations.

Once you understand the basic business model of Dollar General, come back here for the valuation piece.

Dollar General’s Past Performance

Core Four

When analyzing the long-term growth of a company, I like to examine four different metrics to ensure the company is growing in alignment with shareholders. I like to call these metrics the “Core Four”. They are:

  • Revenue
  • Diluted Earnings (Net Income)
  • Free Cash Flow (FCF)
  • Book Value (or Equity)

If all four of these Core Four metrics are steadily compounding over time, then congratulations! You have likely found a great business to invest in!

Back to Dollar General Corp. (DG). Let’s check out the performance of its Core Four metrics over the past 10 years.

Source: Finbox

As you can see, Dollar General Corp’s Core Four growth metics have been staggering. DG has seen a nearly perfect increase in all metrics over the past decade, with a major increase to FCF and EPS just within the last year.

Revenues have climbed at a steady 8% per year, with book value not far behind at over 6% per year.

More impressive however have been EPS and FCF, compounding at 18% and 17% per year, respectively.

Aligned With Shareholders

This growth has translated into incredible returns for shareholders. DG has seen its stock price appreciate 660% since 2011, or around 22% annually.

Source: Finbox

Management

DG has been growing very well over the past decade. This is mainly due to stellar management, who have been able to put the company in a great position to capitalize on this growth.

DG executives have been able to recognize patterns in its business and consumer base, which have allowed them to expand and maximize profits simultaneously. These are difficult tasks for any business, yet DG’s management has risen to the occasion, especially during COVID-19.

Here is some of the impressive work DG has been able to accomplish recently for all its stores:

  • 31 consecutive years of same store growth
  • Dollar General Mobile App
  • “DG Pickup” for online ordering and contactless shopping

Additionally, management has its eyes on opening more stores, as well as making them more efficient. Here are some long-term plans the DG team already has in the works:

  • Open new store chain Popshelf
  • Rollout of self-distribution model “DG Fresh” for refrigerated foods
  • Non-Consumables Initiative to offer consumers products that provide DG with higher margins

This stellar determination to compound the business has enabled Dollar General Corp to become even more profitable within the last year, as noted by its increase in FCF and EPS. Most notably, its profitability is in the top percentile of its industry.

Dollar General Corp
Source: Stock Rover

On top of all this, DG is even rewarding its frontline employees with pay bonuses for their resilience during COVID-19. It doesn’t get much better than this.

A Wonderful Business

So, we have clearly been able to see that Dollar General is a wonderful business with fantastic management. How do we determine what price to pay?

Roll up your sleeves, it’s time for some valuation work.

Intrinsic Valuation

The gold standard of stock valuation is the Discounted Cash Flow method. If you are unfamiliar with this concept, then check out my detailed overview of calculating intrinsic value.

Let’s plug in our inputs.

Dollar General Corp

Let’s explain these numbers a bit. With any investment, I am looking for no less than a 15% return, and my default margin of safety is also 15%.

Choosing growth rates is always the most challenging elements of stock valuation. DG has grown FCF at an astounding pace of 17% per year over the past decade.

I went with somewhat aggressive growth rates of 14% and 10% respectively because I have confidence that management will continue to find opportunities to compound the business as we emerge from COVID-19.

Terminal value was determined to be 17x as it is the current (and historical) Price/FCF.

Dollar General Corp

A Good Buy?

Lucky us! According to our calculations, Dollar General Corp’s intrinsic value is currently undervalued, as it is currently trading around $211.

However, with its current value of $211, DG is not significantly undervalued. If we were to buy now at $211 and sell in a year at $226, we would only be making about an 8% return.

Therefore, DG’s current share price does not represent a great value opportunity. If DG was trading under $200 per share, we could then quite possibly make our target of 15% in one year’s time.

So how else should we value DG? Let’s look at a long term hold situation.

Equity Bond Valuation

Let’s try and value DG as more of a long-term, buy and hold stock, by using the Equity Bond method.

Firstly, in order for DG to qualify for this method of valuation, it has to have a previous record of a high ROE (>15%) for long periods, while increasing book value. Let’s see if it qualifies:

DG
Source: Finbox

Sure enough, Dollar General Corp has posted phenomenal ROE over the last decade, never once dipping below 15%. More impressively, it has increased it’s ROE and book value nearly every year, with current ROE levels reaching nearly 40%!

Now that we know DG qualifies for this method, let’s input our numbers for the calculation.

DG

DG

According to our calculations, DG is currently operating at a 35% ROE and offering an Equity Bond (earnings yield) of 4.8%. If DG can maintain this ROE and dividend payout ratio, then we could see our investment compound at nearly 27% per year, with an Equity Bond yielding over 24% at the end of 10 years.

Lofty Expectations?

Now, if you think these projections seem a little lofty, that’s probably because they are. DG is currently operating at an extremely high ROE, (its highest ever) which is not easy to maintain. Also, we are continuing to deal with the effects of COVID-19, which will likely continue for some time.

That being said, DG performed phenomenally in 2020 throughout the adversity. Because of their stellar track record, I am confident that management can pull off ROEs at least 25%. The continued plans and incentives may allow for even better performance.

Also, let’s not forget that over the last decade, DG shares appreciated approximately 22% per year, not too far from our 27% projection. Nothing is impossible, but it is always good to remain grounded when valuing stocks.

Conclusion

Dollar General Corp is operating a wonderful business that offers great value to both customers. Similarly for Wall Street, it offers a high-quality stock with solid growth potential at a respectable price.

For this reason, I included DG in my VVI Portfolio as a long-term, buy and hold investment. It operates with two critical elements for any company to succeed: a durable and resilient business model and outstanding management.

Article by Vintage Value Investing

The post How To Value A Company Like Dollar General Corp. (DG) appeared first on ValueWalk.

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Analyst reviews Apple stock price target amid challenges

Here’s what could happen to Apple shares next.

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They said it was bound to happen.

It was Jan. 11, 2024 when software giant Microsoft  (MSFT)  briefly passed Apple  (AAPL)  as the most valuable company in the world.

Microsoft's stock closed 0.5% higher, giving it a market valuation of $2.859 trillion. 

It rose as much as 2% during the session and the company was briefly worth $2.903 trillion. Apple closed 0.3% lower, giving the company a market capitalization of $2.886 trillion. 

"It was inevitable that Microsoft would overtake Apple since Microsoft is growing faster and has more to benefit from the generative AI revolution," D.A. Davidson analyst Gil Luria said at the time, according to Reuters.

The two tech titans have jostled for top spot over the years and Microsoft was ahead at last check, with a market cap of $3.085 trillion, compared with Apple's value of $2.684 trillion.

Analysts noted that Apple had been dealing with weakening demand, including for the iPhone, the company’s main source of revenue. 

Demand in China, a major market, has slumped as the country's economy makes a slow recovery from the pandemic and competition from Huawei.

Sales in China of Apple's iPhone fell by 24% in the first six weeks of 2024 compared with a year earlier, according to research firm Counterpoint, as the company contended with stiff competition from a resurgent Huawei "while getting squeezed in the middle on aggressive pricing from the likes of OPPO, vivo and Xiaomi," said senior Analyst Mengmeng Zhang.

“Although the iPhone 15 is a great device, it has no significant upgrades from the previous version, so consumers feel fine holding on to the older-generation iPhones for now," he said.

A man scrolling through Netflix on an Apple iPad Pro. Photo by Phil Barker/Future Publishing via Getty Images.

Future Publishing/Getty Images

Big plans for China

Counterpoint said that the first six weeks of 2023 saw abnormally high numbers with significant unit sales being deferred from December 2022 due to production issues.

Apple is planning to open its eighth store in Shanghai – and its 47th across China – on March 21.

Related: Tech News Now: OpenAI says Musk contract 'never existed', Xiaomi's EV, and more

The company also plans to expand its research centre in Shanghai to support all of its product lines and open a new lab in southern tech hub Shenzhen later this year, according to the South China Morning Post.

Meanwhile, over in Europe, Apple announced changes to comply with the European Union's Digital Markets Act (DMA), which went into effect last week, Reuters reported on March 12.

Beginning this spring, software developers operating in Europe will be able to distribute apps to EU customers directly from their own websites instead of through the App Store.

"To reflect the DMA’s changes, users in the EU can install apps from alternative app marketplaces in iOS 17.4 and later," Apple said on its website, referring to the software platform that runs iPhones and iPads. 

"Users will be able to download an alternative marketplace app from the marketplace developer’s website," the company said.

Apple has also said it will appeal a $2 billion EU antitrust fine for thwarting competition from Spotify  (SPOT)  and other music streaming rivals via restrictions on the App Store.

The company's shares have suffered amid all this upheaval, but some analysts still see good things in Apple's future.

Bank of America Securities confirmed its positive stance on Apple, maintaining a buy rating with a steady price target of $225, according to Investing.com

The firm's analysis highlighted Apple's pricing strategy evolution since the introduction of the first iPhone in 2007, with initial prices set at $499 for the 4GB model and $599 for the 8GB model.

BofA said that Apple has consistently launched new iPhone models, including the Pro/Pro Max versions, to target the premium market. 

Analyst says Apple selloff 'overdone'

Concurrently, prices for previous models are typically reduced by about $100 with each new release. 

This strategy, coupled with installment plans from Apple and carriers, has contributed to the iPhone's installed base reaching a record 1.2 billion in 2023, the firm said.

More Tech Stocks:

Apple has effectively shifted its sales mix toward higher-value units despite experiencing slower unit sales, BofA said.

This trend is expected to persist and could help mitigate potential unit sales weaknesses, particularly in China. 

BofA also noted Apple's dominance in the high-end market, maintaining a market share of over 90% in the $1,000 and above price band for the past three years.

The firm also cited the anticipation of a multi-year iPhone cycle propelled by next-generation AI technology, robust services growth, and the potential for margin expansion.

On Monday, Evercore ISI analysts said they believed that the sell-off in the iPhone maker’s shares may be “overdone.”

The firm said that investors' growing preference for AI-focused stocks like Nvidia  (NVDA)  has led to a reallocation of funds away from Apple. 

In addition, Evercore said concerns over weakening demand in China, where Apple may be losing market share in the smartphone segment, have affected investor sentiment.

And then ongoing regulatory issues continue to have an impact on investor confidence in the world's second-biggest company.

“We think the sell-off is rather overdone, while we suspect there is strong valuation support at current levels to down 10%, there are three distinct drivers that could unlock upside on the stock from here – a) Cap allocation, b) AI inferencing, and c) Risk-off/defensive shift," the firm said in a research note.

Related: Veteran fund manager picks favorite stocks for 2024

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Major typhoid fever surveillance study in sub-Saharan Africa indicates need for the introduction of typhoid conjugate vaccines in endemic countries

There is a high burden of typhoid fever in sub-Saharan African countries, according to a new study published today in The Lancet Global Health. This high…

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There is a high burden of typhoid fever in sub-Saharan African countries, according to a new study published today in The Lancet Global Health. This high burden combined with the threat of typhoid strains resistant to antibiotic treatment calls for stronger prevention strategies, including the use and implementation of typhoid conjugate vaccines (TCVs) in endemic settings along with improvements in access to safe water, sanitation, and hygiene.

Credit: IVI

There is a high burden of typhoid fever in sub-Saharan African countries, according to a new study published today in The Lancet Global Health. This high burden combined with the threat of typhoid strains resistant to antibiotic treatment calls for stronger prevention strategies, including the use and implementation of typhoid conjugate vaccines (TCVs) in endemic settings along with improvements in access to safe water, sanitation, and hygiene.

 

The findings from this 4-year study, the Severe Typhoid in Africa (SETA) program, offers new typhoid fever burden estimates from six countries: Burkina Faso, Democratic Republic of the Congo (DRC), Ethiopia, Ghana, Madagascar, and Nigeria, with four countries recording more than 100 cases for every 100,000 person-years of observation, which is considered a high burden. The highest incidence of typhoid was found in DRC with 315 cases per 100,000 people while children between 2-14 years of age were shown to be at highest risk across all 25 study sites.

 

There are an estimated 12.5 to 16.3 million cases of typhoid every year with 140,000 deaths. However, with generic symptoms such as fever, fatigue, and abdominal pain, and the need for blood culture sampling to make a definitive diagnosis, it is difficult for governments to capture the true burden of typhoid in their countries.

 

“Our goal through SETA was to address these gaps in typhoid disease burden data,” said lead author Dr. Florian Marks, Deputy Director General of the International Vaccine Institute (IVI). “Our estimates indicate that introduction of TCV in endemic settings would go to lengths in protecting communities, especially school-aged children, against this potentially deadly—but preventable—disease.”

 

In addition to disease incidence, this study also showed that the emergence of antimicrobial resistance (AMR) in Salmonella Typhi, the bacteria that causes typhoid fever, has led to more reliance beyond the traditional first line of antibiotic treatment. If left untreated, severe cases of the disease can lead to intestinal perforation and even death. This suggests that prevention through vaccination may play a critical role in not only protecting against typhoid fever but reducing the spread of drug-resistant strains of the bacteria.

 

There are two TCVs prequalified by the World Health Organization (WHO) and available through Gavi, the Vaccine Alliance. In February 2024, IVI and SK bioscience announced that a third TCV, SKYTyphoid™, also achieved WHO PQ, paving the way for public procurement and increasing the global supply.

 

Alongside the SETA disease burden study, IVI has been working with colleagues in three African countries to show the real-world impact of TCV vaccination. These studies include a cluster-randomized trial in Agogo, Ghana and two effectiveness studies following mass vaccination in Kisantu, DRC and Imerintsiatosika, Madagascar.

 

Dr. Birkneh Tilahun Tadesse, Associate Director General at IVI and Head of the Real-World Evidence Department, explains, “Through these vaccine effectiveness studies, we aim to show the full public health value of TCV in settings that are directly impacted by a high burden of typhoid fever.” He adds, “Our final objective of course is to eliminate typhoid or to at least reduce the burden to low incidence levels, and that’s what we are attempting in Fiji with an island-wide vaccination campaign.”

 

As more countries in typhoid endemic countries, namely in sub-Saharan Africa and South Asia, consider TCV in national immunization programs, these data will help inform evidence-based policy decisions around typhoid prevention and control.

 

###

 

About the International Vaccine Institute (IVI)
The International Vaccine Institute (IVI) is a non-profit international organization established in 1997 at the initiative of the United Nations Development Programme with a mission to discover, develop, and deliver safe, effective, and affordable vaccines for global health.

IVI’s current portfolio includes vaccines at all stages of pre-clinical and clinical development for infectious diseases that disproportionately affect low- and middle-income countries, such as cholera, typhoid, chikungunya, shigella, salmonella, schistosomiasis, hepatitis E, HPV, COVID-19, and more. IVI developed the world’s first low-cost oral cholera vaccine, pre-qualified by the World Health Organization (WHO) and developed a new-generation typhoid conjugate vaccine that is recently pre-qualified by WHO.

IVI is headquartered in Seoul, Republic of Korea with a Europe Regional Office in Sweden, a Country Office in Austria, and Collaborating Centers in Ghana, Ethiopia, and Madagascar. 39 countries and the WHO are members of IVI, and the governments of the Republic of Korea, Sweden, India, Finland, and Thailand provide state funding. For more information, please visit https://www.ivi.int.

 

CONTACT

Aerie Em, Global Communications & Advocacy Manager
+82 2 881 1386 | aerie.em@ivi.int


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US Spent More Than Double What It Collected In February, As 2024 Deficit Is Second Highest Ever… And Debt Explodes

US Spent More Than Double What It Collected In February, As 2024 Deficit Is Second Highest Ever… And Debt Explodes

Earlier today, CNBC’s…

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US Spent More Than Double What It Collected In February, As 2024 Deficit Is Second Highest Ever... And Debt Explodes

Earlier today, CNBC's Brian Sullivan took a horse dose of Red Pills when, about six months after our readers, he learned that the US is issuing $1 trillion in debt every 100 days, which prompted him to rage tweet, (or rageX, not sure what the proper term is here) the following:

We’ve added 60% to national debt since 2018. Germany - a country with major economic woes - added ‘just’ 32%.   

Maybe it will never matter.   Maybe MMT is real.   Maybe we just cancel or inflate it out. Maybe career real estate borrowers or career politicians aren’t the answer.

I have no idea.  Only time will tell.   But it’s going to be fascinating to watch it play out.

He is right: it will be fascinating, and the latest budget deficit data simply confirmed that the day of reckoning will come very soon, certainly sooner than the two years that One River's Eric Peters predicted this weekend for the coming "US debt sustainability crisis."

According to the US Treasury, in February, the US collected $271 billion in various tax receipts, and spent $567 billion, more than double what it collected.

The two charts below show the divergence in US tax receipts which have flatlined (on a trailing 6M basis) since the covid pandemic in 2020 (with occasional stimmy-driven surges)...

... and spending which is about 50% higher compared to where it was in 2020.

The end result is that in February, the budget deficit rose to $296.3 billion, up 12.9% from a year prior, and the second highest February deficit on record.

And the punchline: on a cumulative basis, the budget deficit in fiscal 2024 which began on October 1, 2023 is now $828 billion, the second largest cumulative deficit through February on record, surpassed only by the peak covid year of 2021.

But wait there's more: because in a world where the US is spending more than twice what it is collecting, the endgame is clear: debt collapse, and while it won't be tomorrow, or the week after, it is coming... and it's also why the US is now selling $1 trillion in debt every 100 days just to keep operating (and absorbing all those millions of illegal immigrants who will keep voting democrat to preserve the socialist system of the US, so beloved by the Soros clan).

And it gets even worse, because we are now in the ponzi finance stage of the Minsky cycle, with total interest on the debt annualizing well above $1 trillion, and rising every day

... having already surpassed total US defense spending and soon to surpass total health spending and, finally all social security spending, the largest spending category of all, which means that US debt will now rise exponentially higher until the inevitable moment when the US dollar loses its reserve status and it all comes crashing down.

We conclude with another observation by CNBC's Brian Sullivan, who quotes an email by a DC strategist...

.. which lays out the proposed Biden budget as follows:

The budget deficit will growth another $16 TRILLION over next 10 years. Thats *with* the proposed massive tax hikes.

Without them the deficit will grow $19 trillion.

That's why you will hear the "deficit is being reduced by $3 trillion" over the decade.

No family budget or business could exist with this kind of math.

Of course, in the long run, neither can the US... and since neither party will ever cut the spending which everyone by now is so addicted to, the best anyone can do is start planning for the endgame.

Tyler Durden Tue, 03/12/2024 - 18:40

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