Morgan Stanley and Goldman Sachs both raised their price targets on Dick’s Sporting Goods. Morgan Stanley stated the market is undervaluing Dick’s transformation efforts. Goldman Sachs said the retailer, as well as Academy, had a “somewhat mixed” holiday performance but sees healthy growth continuing for both in 2023.
Morgan Stanley raised its price target on Dick’s to $165 from $135.
Shares of Dick’s closed Thursday at $128.60, up $1.17. The stock’s 52-week range is between $63.45 and $131.12.
In a note, Morgan Stanley analyst Simeon Gutman said he believes Dick’s stock isn’t reflecting the benefits of its transformation efforts.
“We think the majority of DKS’s sales/margin gains are sustainable post-COVID,” said Gutman. “Examples of businesses that have successfully transformed their sales/margin profiles are few and far between in Retail. DKS could be the next one, but the market remains unconvinced.”
He noted that investors may be apprehensive given Dick’s pre-COVID pattern that consisted of “volatile comp growth and margin performance” relative to Morgan Stanley’s coverage in the space as well as concerns that the sporting goods industry’s pandemic-related boost may be “a likely one-time dynamic.”
However, he said several “structural changes” that began pre-pandemic for Dick’s, including improved product assortment, digital and personalized marketing, strengthening omnichannel capabilities, and a cultural shift, should lead to a stronger, healthier business post-COVID.”
He added, “The reward could be significant; we think DKS’s transformation is reminiscent of both Lowe’s margin expansion story and Walmart’s development of its omnichannel infrastructure, which triggered a structural re-rating.”
Gutman also estimates the sporting goods category could grow faster going forward with Morgan Stanley forecasting 6 percent category growth post-2023 versus 5 percent pre-COVID growth. The analyst said sports participation “appears to be holding in stronger for longer” and the “reversion off COVID gains so far has been benign.”
As a result, Morgan Stanley is predicting Dick’s long-term comp growth rate at 3.5 percent versus 2 percent for Wall Street’s consensus estimates.
Gutman also said third-party data indicates Dick’s customer base is “stickier across in-store and online channels” versus pre-pandemic 2019 levels and Dick’s higher-income household penetration has increased more so than key peers over the pandemic.
Morgan Stanley has an “Overweight” rating on Dick’s.
Goldman Sachs raised its price target on Dick’s to $136 from $129 previously while maintaining its price objective on Academy Sports at $65. In a note, Goldman Sachs’ analysts led by Kate McShane provided an update on promotional activity at both chains, well as an analysis of traffic and app downloads for the holiday season.
McShane said Goldman Sach’s promotional survey, covering both in-store and online trends, found average promotions at both chains were “mixed” across apparel and footwear but overall remained “relatively low.”
Dick’s and Academy saw declines in total visits year over year across November and December, according to Placer.ai. However, McShane noted that visit declines “appear to have improved sequentially in the last few weeks of December, with DKS seeing positive visits YoY during the weeks of 12/19 and 12/26.”
Inventory at both chains, based on the online count of products, was found to be “still high but moderating from peak” levels, according to the note.
Finally, McShane noted that Academy and Dick’s saw “solid” app download growth with triple-digit growth in November and double-digit increases in December. Academy saw more growth in app downloads than Dick’s in the month of December.
Goldman Sachs has “Buy” ratings on both Dick’s and Academy Sports. McShane wrote, “Although holiday data is somewhat mixed for the sporting goods retailers, we expect both ASO and DKS will grow their top lines in 2023 through overall industry growth and market share gains. We would note that both stocks trading at a significant discount to the market and below their 3-year averages.”
