In a report published Wednesday, BMO Capital Markets analyst Wayne Hood downgraded the rating on Dick's Sporting Goods DKS from Outperform to Market Perform, and maintained the $57.00 price target.
In the report, BMO Capital Markets noted, “We are lowering our rating to Market Perform from Outperform given: 1) the stock is up ~17% versus a 7.3% increase for the S&P 500 since March and now trades at 16.0x our FY2014 EPS estimate of $3.30 (down from $3.35) compared with 13.5x in March; 2) comp-store sales trends have improved in the 2Q13 (est. up 3.9%) from the 1Q's 1.7% decline, but more aggressive promotions are likely needed to drive sales growth in certain segments (golf, fitness/cardio) of the company's business while the company is in a position of having to maintain margins; 3) we see management's FY2013 EPS guidance of $2.84-$2.86 as a potential outcome, but it requires significant expense leverage in the face of upfront spending on future growth initiatives ($0.12/share impact in FY2013) and has little upside; 4) new store potential (1,100 stores), particularly big box stores, could eventually be recalibrated lower owing to sales cannibalization, growth in e-commerce (5.8% of 1Q13 sales versus 3.7% LY) and specialty store formats (True Runner and Field Stream); 5) new store productivity slipped in the 1Q13 (89.1% vs. 105.8% LY) and could be lower YOY in 2Q13; and 6) concerns over growing free shipping offers that pressure GM rate.”
Dick's Sporting Goods closed on Tuesday at $52.75.
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