DG Dollar General
Rural discount moat intact; valuation assumes partial margin repair, not a return to peak, so shares look near fair value.
The story
Dollar General is the largest US small-box discount retailer, with about 20,000 stores in rural and small-town markets where it often faces little direct competition. That density and convenience moat is real, but the company is mature: store growth is slowing, and margins fell from about 9% to about 4% on shrink, markdowns, labor reinvestment and a trade-down customer who is financially stretched. The 'Back to Basics' turnaround is now restoring margins, though a return to peak levels is unlikely given Walmart's price pressure and higher structural labor costs.
Revenue growth follows the roughly 4% five-year CAGR, supported by modest store openings and remodels plus low-single-digit comps, then fades toward inflation. The target margin of 6.5% assumes a partial recovery from 5.6% but stays well below the 8.8% peak, because labor, shrink and competitive pricing costs look structural. Sales-to-capital is set slightly below the TTM figure of 3.33 to fund remodels, and beta sits near the staples anchor with a small premium for leverage and lease obligations.
Value drivers
| Revenue growth (Y1) | 4.5% |
| Terminal growth | 2.5% |
| Forecast horizon | 7y |
| Target operating margin | 6.5% |
| Years to target margin | 4 |
| Sales-to-capital | 3.00 |
| Beta | 0.75 |
| Failure probability | 2.0% |
| Cost of capital (WACC) | 7.9% |
| Terminal WACC | 8.8% |
Valuation bridge
| PV of explicit FCFF | 9.72B |
| PV of terminal value | 21.92B |
| Equity value | 27.64B |
| ÷ shares → per share | $125.28 |
News
neutral +0.15 · 8 articles
- These 4 Retail Stocks Are Winning the Race for Inflation-Weary Bargain Hunters
- DLTR Falls 17.9% in the Past Month as Margin Risks Test Its Rebound
- DLTR Lifts 2026 Earnings Outlook as Tariff Refunds Fund Reinvestment
- Is DLTR a Buy as Earnings Improve but Margin and Tariff Risks Remain?
- Dollar General's Project Renovate and Elevate Drive Comp Sales Lift
- Target Sees Underlying 2026 Margin Above 2025 as Profitability Improves
- Buy 3 Big Discount Retailers to Gain From Solid Near-Term Price Upside
- Non-Discretionary Retail Stocks Q2 Recap: Benchmarking Dollar General (NYSE:DG)
Projected free cash flow to the firm
| Yr | Revenue | Growth | Margin | NOPAT | Reinvest | FCFF | PV |
|---|---|---|---|---|---|---|---|
| 1 | 45.60B | 4.5% | 5.8% | 2.04B | 654.57M | 1.38B | 1.28B |
| 2 | 47.50B | 4.2% | 6.0% | 2.21B | 633.36M | 1.57B | 1.35B |
| 3 | 49.32B | 3.8% | 6.3% | 2.38B | 606.97M | 1.77B | 1.41B |
| 4 | 51.05B | 3.5% | 6.5% | 2.55B | 575.43M | 1.98B | 1.46B |
| 5 | 52.67B | 3.2% | 6.5% | 2.64B | 538.85M | 2.10B | 1.44B |
| 6 | 54.16B | 2.8% | 6.5% | 2.71B | 497.40M | 2.21B | 1.41B |
| 7 | 55.51B | 2.5% | 6.5% | 2.78B | 451.31M | 2.33B | 1.37B |
Key risks
- Margin recovery stalls if shrink, labor costs or markdowns stay high
- Low-income consumers come under strain, and Walmart, Dollar Tree and Aldi take share
- Tariff costs and heavy lease plus debt leverage (about $15.7B total debt) squeeze flexibility
Catalysts
- Back to Basics execution lifting operating margin back toward 6-7%
- Trade-down traffic from inflation-weary shoppers driving comps