Shares of Dollar General are doing what seemed impossible just a couple of months ago: They're on track to climb for the fifth week out of the last six.
More importantly, Dollar General stock edged out of a flat base Monday and made a bigger push above the 97.85 buy point Tuesday. Volume was 47% above average Tuesday. Other dollar-store stocks are awakening from their doldrums.
While Dollar General's fundamentals haven't quite turned the corner, analysts believe the outlook is brightening.
Last Wednesday, Evercore ISI added Dollar General to its Outperform Tactical and Action Positioning Call List. Evercore analysts see the potential for a high single-digit to low double-digit jump in shares over the next month, according to a summary of the research note via TheFly.com.
Analysts believe the Q1 earnings release and guidance should "keep the stock grinding higher." Evercore has a 100 price target on Dollar General.
The retailer will announce June 3 results for the quarter ended May 2. EPS have declined the past eight quarters, with sales in the single digits, per MarketSurge. Analysts expect similar results this time.
Analysts More Positive On Dollar General Stock
On May 8, Guggenheim raised Dollar General's price target to 105 from 100 and kept a buy rating. Analysts raised their fiscal Q1 forecast to reflect "solid third-party data," per TheFly.com. With an estimated 6%-8% exposure to China, tariff direct impact "seems manageable."
Bernstein raised its price target on Dollar General to 105 from 95 on May 5 and reiterated an outperform rating. Analysts expect retailers to lower product costs by 20%-25% through lower wholesale prices, changing product specs or switching suppliers. Retailers, Bernstein expects, would then pass on remaining costs to consumers.
Dollar General's earnings per share fell 20% to 46% the past six quarters. Sales growth ranged from a 3% decline to a 6% increase, according to MarketSurge. Shares are well below the all-time peak of 262.21 from three years ago.
Dollar General Stock Helps Industry Group
Also surprising is the fact that IBD's discount and variety retail industry group has climbed into the top 10 after being No. 132 three months ago.
Dollar Tree is trading at the highest level since late August and on track for seventh straight weekly win. The stock broke out past a 79.24 buy point about a month ago and is now extended past the buy zone.
Dollar Tree peaked at 177.19 three years ago. On Tuesday, it closed at 90.65. The stock has a Composite Rating of 75.
BWG Global upgraded Dollar Tree to positive from mixed Tuesday. Dollar Tree store managers and suppliers reported steady performance and improved year-over-year sales growth during the fiscal first quarter, TheFly.com said.
Brigade Capital Management and Macellum Capital Management agreed to acquire the Family Dollar business from Dollar Tree in March for $1 billion.
Other Discount Retailers To Watch
Five Below gapped up 21% in heavy volume May 12, after the U.S. and China agreed to scale down tariffs. China is the main supplier to Five Below.
The stock closed back above the 200-day moving average, as has kept advancing. On Monday, Goldman Sachs raised the price target to 107 from 94 and maintained a buy rating. Five Below has a 92 Composite Rating, highest in the group along with BJ's Wholesale Club.
IBD does not recommend investing in stocks with poor fundamentals. But investors can keep watching the dollar stores if their fundamentals improve. Moreover, dollar-store stocks have a lot of overhead supply to overcome.
TJX Cos. and Target, which are in the major discount chains industry group, report earnings early Wednesday. BJ's is on tap Thursday.
TJX stock broke out of double-bottom base in April and is now extended from the 127.58 buy point. But it's less than 3% above a three-weeks-tight entry at 131.30. Target stock is trying to snap out of a yearlong downtrend.
BJ's stock has rebounded from the 10-week line this week, on track for a flat base after Friday.
