EXEC: Dick’s SG And Academy Sports Score Stock Price Upgrades

Cowen raised its price target on Dick’s Sporting Goods as survey data indicates the chain is gaining market share while Wedbush Securities lifted its price target on both Dick’s and Academy Sports on overall favorable fundamentals in the sporting goods channel.

“We remain positive on the sporting goods sector into 2023 and continue to recommend the purchase of Dick’s Sporting Goods (DKS) and Academy Sports & Outdoors (ASO),” wrote Wedbush analysts led by Seth Basham in a note. “We believe that both companies fared well through the holidays to end 2022, driven by strong assortments, better inventory levels, exclusive products and a more normalized holiday season (versus pulled forward holiday sales in recent prior years amidst a volatile supply chain environment).”

Basham also noted that placer.ai data indicates Dick’s saw “solid” holiday store traffic, another factor prompting him to lift his estimate for Dick’s fourth-quarter comps to a gain of 3.5 percent from 1 percent previously and the consensus estimate of 1.8 percent growth.

Wedbush still expects Dick’s fourth-quarter EPS to be about in line with consensus estimates of $2.90 with additional pressure on gross margins due in part to clearance and promotional activity offset by better SG&A leverage partly due to sales upside.

For Academy, Wedbush continues to forecast comps of negative 2 percent versus consensus of negative 1.8 percent as Academy continues to feel pressure from the outdoors category in the hunt area. Wedbush also reiterated its EPS on Academy of $1.87 versus Wall Street’s consensus estimate of $1.84 with gross margin declines primarily due to normalizing promos offset by SG&A leverage driven by cost efficiencies.

For the overall U.S. sporting goods industry, Wedbush forecasts a low-single-digit sales year-over-year sales decline in 2023 (about in line with 2022 levels) and better than some other discretionary retail categories. Basham added, “More importantly, we remain relatively sanguine on the overall sporting goods industry in 2023 as a continued strong interest in the category—particularly apparel and footwear—as well as wraparound pricing should mostly offset pressures from modestly weaker discretionary demand and the continued lapping of pulled forward team sports, home fitness and outdoor category sales.”

Wedbush expects both Dick’s and Academy to outperform the industry.

Wedbush raised its price target on Dick’s to $150 from $140 and its price target on Academy to $68 from $62.

Shares of Dick’s closed Monday at $134.38 after starting the year at $120.29. Its 52-week range is between $63.45 and $138.43. Shares of Academy closed Monday at $61.25 after starting the year at $52.54. Its 52-week range is between $25.10 and $63.89.

At Cowen, analyst John Kernan raised his price target on Dick’s to $166 from $155. Cowen also raised its FY23 EPS estimate on Dick’s above Wall Street’s consensus estimates and views consensus targets on same-store sales, EBIT margin and share repurchase “as modeled too conservatively” by Wall Street.

In a note, Kernan wrote that Cowen’s recent Consumer Tracker survey shows that when respondents were asked “When I am shopping for sporting goods, my first choice to go to is?”, an average of 31 percent of 2022 respondents indicated Dick’s was their sporting goods retailer of choice. Dick’s 36 percent preference share was above second-place Amazon as Dick’s preference share reached an all-time high in Cowen’s December 2022 survey, up from 20 percent in January 2020.

Kernan wrote, “Dick’s likely took share from a combination of Amazon, REI and Zappos in 2022 and is improving most rapidly in the survey with higher income consumers and women.”

Cowen is modeling fourth-quarter same-store growth at Dick’s of 3 percent, above the implied guidance of negative 4 percent to positive 1.5 percent. Kernan cited favorable sporting goods retail data from the U.S. Census Bureau for his optimism on the outperformance. The above-guidance Q4 same-store assumption supports Cowen’s Q4 EPS estimate of $3.09 compared to Wall Street’s consensus target of $2.93 with Cowen’s Q4 EBIT margin estimate of 10.4 percent in-line with consensus. Kernan wrote, “This appears warranted given the better-than-feared sporting goods sales, Dick’s preference share gains y/y, and the company’s improved assortments.”