Dollar General Stock Eyeing Record Highs Ahead Of Earnings

DG stock touched an annual high on Monday

Managing Editor
Dec 6, 2017 at 12:28 PM
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Although earnings season has all but wrapped up, there are still a few stragglers who have yet to step up to the plate. One such company is bargain retailer Dollar General Corp. (NYSE:DG), which reports earnings before the open tomorrow, and hopes to keep pace with its surging sector rival Dollar Tree (DLTR). Below, we will take a look at Dollar General's earnings history, and examine how analysts and options traders are playing DG stock ahead of earnings. 

Dollar General shares have a solid history of post-earnings price action, finishing the subsequent session higher in five of the past eight quarters. Over the past eight quarters, the security has averaged a single-session post-earnings move of 6.8%, including a 6.5% boost in June. This time around, the options market is pricing in a next-day swing of 8%, regardless of direction, based on at-the-money implied volatility data. A move higher of similar magnitude would have DG flirting with its current all-time high of $96.75.

At last check, DG was up 0.3% to trade at $90.45. Since a late-August bear gap, the equity has been on a tear, adding 23% and touching an annual high of $92.11 on Monday. The surge was started by the shares' rising 50-day moving average, which sent them rallying to record highs last month.

DG Stock Chart

Despite the equity's uptrend, some analysts remain unconvinced. Of the 17 brokerages covering DG, eight rate it a "hold" or "strong sell." Continued technical outperformance could have analysts re-evaluating their bearish outlooks.
 

Although volume has been light, options buyers have preferred Dollar General calls over puts. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), its 10-day call/put volume ratio of 2.96 ranks in the 85th percentile of its annual range. In other words, speculators have been initiating bullish bets over bearish at a near three-to-one ratio in the past two weeks. Furthermore, call open interest now ranks in the 94th percentile. 

Digging deeper, the December 92.50 call has seen the biggest rise in open interest during the past 10 days, with more than 4,600 contracts added. Data isn't clear on how traders positioned themselves here, but those buying the calls are expecting Dollar General to keep surging, and those writing the calls see the $92.50 level as short-term resistance.

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