Dollar General Corporation (DG) and Costco Wholesale Corporation (COST) Critical Analysis

Costco Wholesale Corporation (NASDAQ: COST) and Dollar General Corporation (NYSE:DG) are both large-cap retail/wholesale companies, but which is the better stock? We will compare the two companies based on the strength of their analyst recommendations, institutional ownership, valuation, profitability, dividends, risk and earnings.

Risk & Volatility

Costco Wholesale Corporation has a beta of 0.93, meaning that its stock price is 7% less volatile than the S&P 500. Comparatively, Dollar General Corporation has a beta of 0.93, meaning that its stock price is 7% less volatile than the S&P 500.

Dividends

Costco Wholesale Corporation pays an annual dividend of $2.00 per share and has a dividend yield of 1.3%. Dollar General Corporation pays an annual dividend of $1.04 per share and has a dividend yield of 1.4%. Costco Wholesale Corporation pays out 34.7% of its earnings in the form of a dividend. Dollar General Corporation pays out 23.5% of its earnings in the form of a dividend. Both companies have healthy payout ratios and should be able to cover their dividend payments with earnings for the next several years. Dollar General Corporation has raised its dividend for 13 consecutive years. Dollar General Corporation is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Analyst Ratings

This is a breakdown of current ratings and target prices for Costco Wholesale Corporation and Dollar General Corporation, as provided by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Costco Wholesale Corporation 0 8 20 0 2.71
Dollar General Corporation 2 14 7 0 2.22

Costco Wholesale Corporation currently has a consensus price target of $179.46, suggesting a potential upside of 14.56%. Dollar General Corporation has a consensus price target of $80.15, suggesting a potential upside of 6.17%. Given Costco Wholesale Corporation’s stronger consensus rating and higher probable upside, research analysts plainly believe Costco Wholesale Corporation is more favorable than Dollar General Corporation.

Earnings and Valuation

This table compares Costco Wholesale Corporation and Dollar General Corporation’s gross revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio EBITDA Earnings Per Share Price/Earnings Ratio
Costco Wholesale Corporation $123.28 billion 0.56 $5.19 billion $5.77 27.15
Dollar General Corporation $22.33 billion 0.93 $2.45 billion $4.43 17.04

Costco Wholesale Corporation has higher revenue and earnings than Dollar General Corporation. Dollar General Corporation is trading at a lower price-to-earnings ratio than Costco Wholesale Corporation, indicating that it is currently the more affordable of the two stocks.

Insider & Institutional Ownership

74.1% of Costco Wholesale Corporation shares are owned by institutional investors. Comparatively, 88.7% of Dollar General Corporation shares are owned by institutional investors. 0.7% of Costco Wholesale Corporation shares are owned by insiders. Comparatively, 0.2% of Dollar General Corporation shares are owned by insiders. Strong institutional ownership is an indication that large money managers, endowments and hedge funds believe a stock is poised for long-term growth.

Profitability

This table compares Costco Wholesale Corporation and Dollar General Corporation’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Costco Wholesale Corporation 2.06% 20.45% 6.88%
Dollar General Corporation 5.53% 23.07% 10.66%

About Costco Wholesale Corporation

Costco Wholesale Corporation is engaged in the operation of membership warehouses in the United States and Puerto Rico, Canada, the United Kingdom, Mexico, Japan, Australia, Spain, and through its subsidiaries in Taiwan and Korea. As of August 28, 2016, the Company operated 715 warehouses across the world. The Company’s average warehouse space is approximately 144,000 square feet. The Company’s warehouses on average operate on a seven-day, 70-hour week. The Company offers merchandise in various categories, which include foods (including dry foods, packaged foods and groceries); sundries (including snack foods, candy, alcoholic and nonalcoholic beverages, and cleaning supplies); hardlines (including appliances, electronics, health and beauty aids, hardware, and garden and patio); fresh foods (including meat, produce, deli and bakery); softlines (including apparel and small appliances), and other (including gas stations and pharmacy).

About Dollar General Corporation

Dollar General Corporation is a discount retailer. The Company offers a selection of merchandise, including consumables, seasonal, home products and apparel. The Company’s consumables category includes paper and cleaning products (such as paper towels, bath tissue, and other home cleaning supplies); packaged food (such as cereals, spices, sugar and flour); perishables (such as milk, beer and wine); snacks (such as candy, cookies, and carbonated beverages); health and beauty (such as over-the-counter medicines and personal care products); pet (pet supplies and pet food), and tobacco products. Its seasonal products include decorations, toys, batteries, stationery, prepaid phones and accessories, and home office supplies. Its home products include cookware, craft supplies and kitchen, and bed and bath soft goods. Its apparel products include casual everyday apparel for infants, toddlers, girls, boys, women and men, as well as socks, underwear, disposable diapers, shoes and accessories.

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