Dollar General CorporationDGNYSE

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DCF Valuation

DCF Valuation Summary

Strong Buy

Fair Value: $457.49 per share(market-calibrated)

+201.8%

Upside to Fair Value

Current

$151.57

Pure Model

$504.53

Fair Value

$457.49

Bull Case

$606.63

Bear Case

$427.34

Market Reality Check

Model Terminal Growth

2.50%

Market-Implied Growth

0.50%

Calibrated Growth

1.80%

Fair value uses 65% model / 35% market-implied terminal growth. Pure model: $504.53.

What's Driving This Ratingfor DG

↓

CapEx normalizing toward maintenance

Historical CapEx is 3.28% of revenue (heavy investment phase). Model fades this to 3.00% by Year 10, freeing up ~$165M in annual FCF. This is the biggest driver of long-term cash flow improvement.

↑

Margin expansion modeled

Current EBIT margin is 7.86% — below the sector mature average of 16.00%. Model expands margins as the business scales and operating leverage kicks in. Year 10 EBIT reaches $7.8B (13.33% margin).

→

Moderate revenue growth

Analyst consensus projects 4.92% revenue growth, fading to 2.50% by Year 10. Revenue reaches $58.2B (vs $40.6B today).

🎯

Market pricing in lower growth than model

The market implies only 0.50% perpetual growth — 200bps below the model's 2.50%. This suggests the market sees headwinds or risks not in the model.

✓

Strong cash flow conversion

Year 10 FCF/EBITDA conversion of 60.14% indicates efficient cash generation. FCF reaches $5.3B by Year 10 (9.13% FCF margin).

Weighted Average Cost of Capital (WACC)

Cost of Equity (CAPM)

Risk-Free Rate (Rf)4.50%

Beta (β)0.26

Market Risk Premium4.50%

*Using current implied premium (4.5% per Damodaran 2026), not historical (6.5%)

Cost of Equity (Re)5.65%

Cost of Debt

Pre-tax Cost of Debt1.28%

Tax Rate21.84%

After-tax Cost of Debt1.00%

Equity Weight (E/V)65.62%

Debt Weight (D/V)34.38%

WACC Calculation

WACC = (E/V × Re) + (D/V × Rd × (1-Tc))

WACC = (65.62% × 5.65%) + (34.38% × 1.00%)

= 5.50%

10-Year Free Cash Flow Projections(showing years 1, 3, 5, 7, 10)

Year	Year 1	Year 3	Year 5	Year 7	Year 10
Revenue	$42.6B	$46.3B	$49.9B	$53.5B	$58.2B
EBIT	$3.3B	$3.6B	$3.9B	$5.8B	$7.8B
Tax	$731M	$794M	$857M	$1.3B	$1.7B
NOPAT	$2.6B	$2.8B	$3.1B	$4.5B	$6.1B
+ Depreciation	$789M	$857M	$924M	$991M	$1.1B
- Capex	$1.4B	$1.5B	$1.6B	$1.7B	$1.7B
- Δ NWC	$115M	$109M	$111M	$102M	$82M
Free Cash Flow	$1.9B	$2.1B	$2.3B	$3.7B	$5.3B
Discount Factor	0.948	0.852	0.765	0.687	0.585
Present Value	$1.8B	$1.8B	$1.8B	$2.6B	$3.1B

FCF Formula: Free Cash Flow = NOPAT + Depreciation - Capex - Change in Net Working Capital

Terminal Value Calculation

Perpetuity Growth Method

Year 10 FCF$5.3B

Terminal Growth Rate2.50%

WACC5.50%

TV = FCF₁₀ × (1+g) / (WACC-g)

Terminal Value$181.4B

PV of Terminal Value$106.2B

Exit Multiple Method

Year 10 EBITDA$8.8B

Exit Multiple (EV/EBITDA)20.0x

TV = EBITDA₁₀ × Exit Multiple

Terminal Value$176.6B

PV of Terminal Value$103.4B

Valuation Summary

Perpetuity Growth Method

PV of Projected FCFs$22.7B

PV of Terminal Value$106.2B

Enterprise Value$128.9B

(-) Net Debt$16.5B

Equity Value$112.3B

Shares Outstanding220M

Price per Share$510.95

Exit Multiple Method

PV of Projected FCFs$22.7B

PV of Terminal Value$103.4B

Enterprise Value$126.1B

(-) Net Debt$16.5B

Equity Value$109.5B

Shares Outstanding220M

Price per Share$498.10

Pure Model Fair Value

$504.53

Average of perpetuity growth and exit multiple methods (before market calibration)

Sensitivity AnalysisPrice per Share

WACC ↓ / Growth →	1.50%	2.00%	2.50%	3.00%	3.50%
3.50%	$760.03	$724.78	$691.23	$659.27	$628.83
4.50%	$555.80	$609.97	$691.23	$659.27	$628.83
5.50%	$442.37	$469.01	$504.53	$554.25	$628.83
6.50%	$366.66	$381.89	$400.92	$425.39	$458.01
7.50%	$310.78	$320.33	$331.78	$345.78	$363.27

How to read: This table shows how the valuation changes with different WACC (discount rate) and terminal growth rate assumptions. Green = undervalued, Red = overvalued.

Scenario Analysis

Bear Case

$427.34

181.9% vs current

• -25% vs analyst consensus
• Terminal growth: 2.0%
• Beta: 0.32

Base Case

$504.53

232.9% vs current

• Analyst consensus
• Terminal growth: 2.5%
• Beta: 0.26

Bull Case

$606.63

300.2% vs current

• +25% vs analyst consensus
• Terminal growth: 3.0%
• Beta: 0.30

Key Assumptions & Drivers✓ Using Analyst Consensus Estimates• Consumer Defensive Sector

Growth Assumptions (Select Years)

Year 1 Revenue Growth4.92%

Year 3 Revenue Growth4.24%

Year 5 Revenue Growth4.02%

Year 7 Revenue Growth3.41%

Year 10 Revenue Growth2.50%

Terminal Growth Rate2.50%

Margin & Efficiency

Current EBIT Margin7.86%

Terminal EBIT Margin16.00%

Tax Rate21.84%

Historical Capex / Rev3.28%

Terminal Capex / Rev3.00%

NWC / Revenue5.77%

Key Drivers: Revenue growth, operating margin expansion, capex efficiency, and working capital management are the primary drivers of cash flow generation. Terminal value assumptions significantly impact final valuation.

Institutional-Grade Methodology

Actual Company Data: Revenue, EBIT, Capex, NWC, Tax Rate, Interest Expense, Beta

Market Assumptions: Risk-free: 4.5% (10Y), MRP: 4.5% (Damodaran 2026), Exit: 20x EV/EBITDA (Consumer Defensive sector)

This DCF model is for informational purposes only. Projections are based on assumptions that may not materialize. Past performance does not guarantee future results. Consult a financial advisor before making investment decisions.

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