Goldman Upgrades Dick's To Buy; 'A Competitor's Pain Is Its Rival's Gain'

Goldman Sachs’ Stephen Tanal believes that Dicks Sporting Goods Inc DKS is well positioned to benefit from the closure of its largest competitor, The Sports Authority (TSA).

Tanal upgraded the rating on the company from Neutral to Buy, while raising the price target from $50 to $53.

Best Positioned To Gain

TSA filed for bankruptcy in March and is expected to close most of its stores by the end of August, given that the company “garnered little interest in its leases from sporting goods retailers.”

Tanal believes that Dicks Sporting Goods is best positioned to gain market share following the closing down of TSA, given that 37 percent of the former company’s stores have more than one TSA store within 10 miles.

How The Gain Will Occur

“We expect sharp acceleration in earnings growth in 4Q16, as DKS cycles an easy compare with the benefit of share gain from TSA, and further acceleration in 1Q-3Q17, when “full run rate” TSA benefits compound margin gains from in-souring eCommerce,” the analyst mentioned.

Tanal also pointed out that Dicks Sporting Goods has bought 29 leases of more than 450 TSA stores, with none of the other sporting goods retailers having purchased any.

Also, the company has “the majority of TSA’s intellectual property, including its name (which it can now bury) and its customer lists,” Tanal said, while adding that the deal was expected to be finalized on May 24.