A Sell-Side Take On Why Dick's Could Be The Last Sporting Goods Store Standing

Dicks Sporting Goods Inc DKS's competitive positioning in the retail space is being called into question by some after the company's third quarter earnings report showed a comparable sales decline for just the third time in eight years.

The Analyst

JPMorgan's Christopher Horvers upgraded Dick's stock rating from Neutral to Buy with an unchanged $32 price target.

The Thesis

Horvers offers five reasons to justify his positive stance and upgrade:

• Dick's has the potential to be a "long-term survivor" within the specialty sporting goods retail space.
• Rival sporting good retailers are in the process of "cleaning up" their inventory, which bodes well for valuation purposes, but the Dick's assortment is "already clean."
• Nike Inc NKE's decision to scale back exposure to "undifferentiated retail" channels bodes well for a standout like Dick's.
• The company's focus on store investments and improving the customer experience will help improve trends going forward.
• A "re-base" of 2018 expectations minimizes the risk to earnings misses.

Dick's also seeks to bring technology improvements to its mobile app, increase personalization with clients and improve its Scorecard loyalty program as other initiatives to offer a differentiated experience for customers, Horvers said. 

At 4.3x and 3.5x the analyst's 2018 and 2019 EBITDA estimates, Dick's stock is incorrectly valued as a "department store with terminal value risk," Horvers said. As such, the stock appears "attractive" at current levels, he said. 

Price Action

Shares of Dick's were trading higher by nearly 6 percent Wednesday morning but are still down by nearly 50 percent since the start of 2017.

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