Zacks Investment Ideas feature highlights: Dollar Tree, Dollar General, The TJX Companies and Ross Stores

CHICAGO, April 28, 2011 /PRNewswire/ -- Today, Zacks Investment Ideas feature highlights Features: Dollar Tree, Inc. (Nasdaq: DLTR), Dollar General Corp (NYSE: DG), The TJX Companies, Inc. (NYSE: TJX) and Ross Stores, Inc. (Nasdaq: ROST).

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These Discount Retailers Are On Sale

Some argue that consumers are experiencing "frugal fatigue", where consumers just get plain tired of cutting back their spending and start to splurge again. Although the U.S. consumer may be sick of pinching pennies, unfortunately it doesn't look like they have much of a choice. Incomes have been stagnant while expenses like gas have been soaring.

This means that households have to cut back on their discretionary spending somewhere, and many of them are choosing to shop at discount and off-price retailers.

Still Growing

Although their growth may not as robust as it was a year or two ago, many discount retailers are still posting positive same-store sales growth despite facing very difficult comps. Additionally, many of these value-oriented retailers are value stocks themselves, trading with PEG ratios around 1.0.

Here are 4 discount retailers with a strong outlook and attractive valuations:

Dollar Tree, Inc. (Nasdaq: DLTR) has been firing on all cylinders lately. The company recently delivered record sales and earnings for the fourth quarter and fiscal year 2010.

There doesn't appear to be any signs that customers are "trading up" to more expensive retailers either. Same-store sales in the fourth quarter rose a solid 3.9%.

And despite all the fears of rising input costs, Dollar Tree actually expanded its gross margin in the fourth quarter by 50 basis points, and its operating margin by 100bp to a stellar 15.0%.

Management has guided for low to mid single digit positive comparable-store sales in 2011. Analysts are optimistic as well. The Zacks Consensus Estimate for 2011 is $3.73, representing 16% EPS growth, and the 2012 consensus estimate is $4.24, equating to 14% growth.

Valuation is attractive too with shares trading at 15.3x forward earnings, a discount to the industry average of 16.7x. It sports a PEG ratio of 1.06. It is a Zacks #3 Rank (Hold) stock.

Dollar General Corp (NYSE: DG) is another $1-based retailer that continues to benefit from frugal consumers.

Estimates have been soaring since the company posted better-than-expected fourth quarter results in late March. Same-store sales increased 3.8% in Q4 on top of 7.4% growth in 2009. Just like Dollar Tree, Dollar General experienced expanding gross and operating profit margins.

Management gave 2011 revenue guidance of 11-13% on same-store sales growth of 3-5%. The company expects to earn between $2.20 and $2.30 per share in 2011. The Zacks Consensus Estimate is within guidance at $2.26, representing 22% EPS growth. The 2012 consensus estimate is currently $2.60, corresponding to 15% growth.

Dollar General is a Zacks #1 Rank (Strong Buy) stock.

The company also plans to open approximately 625 new stores in 2011, which would increase its store count by approximately 7%.

This bargain retailer is also a bargain stock with a PEG ratio of just 0.90 and a forward P/E of 13.8.

The TJX Companies, Inc. (NYSE: TJX) is an off-price retailer of apparel and home fashions. It operates TJ Maxx, HomeGoods and Marshalls stores in the U.S. as well as Winners in Canada and TK Maxx in Europe.

The company crushed it in 2009 and 2010 as shoppers flocked to its stores to buy name brand goods at closeout prices. And in spite of facing difficult double-digit same-store sales comps, TJX has been consistently posting better-than-expected sales numbers.

Estimates have been moving higher as a result, and analysts are projecting double-digit EPS growth for the company over the next couple of years. It is a Zacks #2 Rank (Buy) stock.

TJX also generates strong free cash flow and has been returning value to shareholders through stock buybacks and dividend increases. It currently pays a dividend that yields 1.1%.

Although the stock has soared since early 2009, its PEG ratio is an attractive 0.94. Shares are trading at just 13.6x forward earnings, below the peer group average of 16.7x.

Ross Stores, Inc. (Nasdaq: ROST) is an off-price retailer similar to TJX, but considerably smaller.

Its story is similar to TJX too, with the company facing extremely high comp hurdles. But sales have been surprisingly strong. In the fourth quarter of 2010, for instance, same-store sales rose 4% on top of a 10% gain in 2009.

Also, in a recent press release, CEO Michael Balmuth stated that the company expects April same-store sales to improve 4-5% and Q1 EPS above the high end of its previous guidance. This prompted a flurry of upward estimate revisions, sending the stock to a Zacks #2 Rank (Buy) stock.

If consensus estimates materialize, EPS will grow 10% in 2011 and 11% in 2012. Shares trade at 14.2x forward earnings and sport a PEG ratio of 1.11.

Ross Stores also generates solid cash flows and spent $375 million in 2010 buying back stock and recently boosted its quarterly dividend by 38%. It currently yields 1.2%.

Conclusion

Although stocks have been surging for more than 2 years and sales at luxury retailers are soaring, much of the American middle class is still struggling with high unemployment, stagnant incomes and rising gas prices. This bodes well for the value-oriented retailers.

With a bright outlook and attractive valuations, these 4 discount retailers are a bargain.

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