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Deutsche Bank: 3 Reasons Why Dick's Sporting Goods Is A Buy

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Deutsche Bank: 3 Reasons Why Dick's Sporting Goods Is A Buy
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Dicks Sporting Goods Inc (NYSE: DKS) landed another upgrade on Friday, in a positive sign for sports retail in 2018. 

The Analyst

Deutsche Bank analyst Mike Baker upgraded Dicks Sporting Goods from Hold to Buy and raised the price target from $33 to $39.

The Thesis

"After several quarters of weakness, in part caused by fashion changes which saw a focus away from core athletic footwear products — where DKS is stronger compared to the lifestyle trends that came into vogue — we believe industry trends have stabilized," Baker said in a Friday note. (See the analyst's track record here.)  

Deutsche Bank upgraded the retailer for three reasons, Baker said: 

  • Industry trends are bottoming.
  • Inventory levels are coming back into balance with demand, lessening the impact on gross margins.
  • The risk to margin forecasts is reduced, as models already reflect increased investment spending.

Several indicators, both industry-related and from competitors and suppliers, support a more positive view of Dicks Sporting Goods, as retail sales are tracking up in the fourth quarter for the first time in six quarters, Baker said. Even more importantly, retailers with significant footwear exposure are seeing a 600-basis-point improvement in comps, he said. 

“We believe much of the industry weakness over the past several quarters was driven by a glut of inventory that led to a supply and demand imbalance and thus lower margins," Baker said. “But, we believe that supply and demand are starting to move back in line.”

Dicks Sporting Goods, Hibbett Sports, Inc. (NASDAQ: HIBB), Foot Locker, Inc. (NYSE: FL) and Finish Line Inc (NASDAQ: FINL) all reported better sales growth than inventory growth in the third quarter.

Nike Inc (NYSE: NKE) also indicated that inventories were coming back in line after reporting that closeout trends were not significant in the quarter and that product trends are healthier and improving.

Price Action

Dicks Shares moved up over two percent following the upgrade, closing Friday up 2.33 percent at $33.33. 

Related Links:

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Hibbett Sports Upgraded With A Tax Cut, New Products And E-Commerce As Catalysts

Latest Ratings for DKS

DateFirmActionFromTo
May 2018Morgan StanleyMaintainsEqual-WeightEqual-Weight
May 2018BuckinghamMaintainsBuyBuy
May 2018CitigroupMaintainsBuyBuy

View More Analyst Ratings for DKS
View the Latest Analyst Ratings

Posted-In: Deutsche Bank Mike Baker retail Sporting GoodsAnalyst Color Upgrades Price Target Analyst Ratings Best of Benzinga

 

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