Morgan Stanley Lifts Dick’s Sporting Goods Price Target to $115

Morgan Stanley raised their stock price forecast on Dick’s Sporting Goods to $115 from $93 and said that it is driven entirely by a 30% increase in ’22 EPS estimate of $7.60.

Late last month, Dick’s said its fiscal first-quarter net income rose to $361.8 million, or $3.41 per share, from a loss of $143.4 million, or $1.71 per share, a year earlier. The company said its adjusted earnings per share (EPS) of $3.79 per share, beating the Wall Street consensus estimates of $1.12 per share.

The Coraopolis, Pennsylvania-based company said its revenue surged 119% to $2.92 billion, beating estimates for $2.18 billion. On a two-year basis, sales were up 52%.

“We are ‘Overweight’ rated. We see Dick’s Sporting Goods (DKS) as a structurally higher-margin business with faster growth post-COVID-19. This warrants a mid to high-teens multiple in our view. Raising price target to $115,” noted Simeon Gutman, equity analyst at Morgan Stanley.

Dick’s Sporting Goods shares rose over 70% so far this year.

Twenty analysts who offered stock ratings for Dick’s Sporting Goods in the last three months forecast the average price in 12 months at $103.22 with a high forecast of $142.00 and a low forecast of $78.00.

The average price target represents a 5.90% increase from the last price of $97.47. Of those 20 equity analysts, 11 rated “Buy”, eight rated “Hold” while one rated “Sell”, according to Tipranks.

Morgan Stanley gave the bull-case scenario target price of $150 and the worst-case scenario forecast of $60.

Dick’s Sporting Goods (DKS) is in a favorable position given its category dominance, industry tailwinds, and healthy balance sheet. Its outlook within the category is likely to be even stronger post-COVID-19. We see a positive risk/reward skew based on our view the earnings power of the business is underappreciated. Key drivers include merchandise margin expansion and capital return (buybacks). We think there is upside for the stock without underwriting a higher valuation multiple as a result,” Morgan Stanley’s Gutman added.

“The stock’s multiple has not broken out like it has for other retailers in our space which should emerge stronger post-COVID-19. The potential for multiple expansion adds optionality/upside to the bull case.”

Other equity analysts also recently updated their stock outlook. Stephens raised the target price to $95 from $74. CFRA lifted the price target by $30 to $110. UBS upped the price target to $107 from $90.

Telsey Advisory Group increased the price target to $113 from $98. Wedbush lifted the target price to $110 from $97. Stifel lifted the target price to $98 from $71. Citigroup raised the price target to $128 from $90.

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Dick’s Sporting Goods Knocks Quarterly Earnings Out of Ballpark

DICK’S Sporting Goods, Inc. (DKS) jumped 15.68% Wednesday after the sport’s equipment and apparel retailer smashed Wall Street’s earnings and revenues forecasts on the back of surging digital sales.

The company reported second-quarter (Q2) adjusted earnings of $3.21 per share, with the figure coming in well above analysts’ expectation of $1.30 a share and increasing 155% from last year’s profit of $1.24 per share. Sales of $2.71 billion ballooned  20% from a year ago and came in 8.21% ahead of the Street expectation.

As of Aug. 27, 2020, DICK’s stock has a market capitalization of $4.82 billion, issues a 2.68% dividend yield, and is up a whopping 57% over the last three months.

Steep Hike in Online Sales

The company’s digital sales, including curbside pickup orders, grew 194% during the quarter as consumers visited the website to purchase hiking apparel, kayaks, weights, and activewear gear to stay fit during the pandemic. “During this pandemic, the importance of health and fitness has accelerated and participation in socially distant, outdoor activities has increased,” CEO Ed Stack told investors during the conference call, per CNBC. “There has also been a greater shift toward athletic and active lifestyle products with people spending more time working and exercising at home,” he added.

Wall Street View

Analysts remain mostly bullish on the stock as stay-at-home fitness trends look likely to continue into the fall. There’s also a consensus the sporting goods retail giant could gain market share, given that many of its major brick-and-mortar competitors have filed for bankruptcy. The stock receives 10 ‘Buy’ ratings, 14 ‘Hold’ ratings, and 1 ‘Sell’ rating. Price targets range from $71 to $34, with the median Street target sitting at $52. Currently, the shares trade at $53.99.

Technical Outlook and Trading Tactics

The DICK’s share price broke above key resistance at $48 on heavy volume Wednesday, indicating institutional buying interest behind the move. Furthermore, earlier this week, the moving average convergence divergence (MACD) indicator crossed above its trigger line to generate a buy signal. Additionally, a golden cross signal last month suggests further upside.

Those who play the breakout should look for a retest the all-time high (ATH) at $62.88, with a stop-loss order placed underneath yesterday’s low at $50.47. The trade offers a risk/reward ratio of around 1:2.5, assuming a fill at Wednesday’s $53.99 closing price. ($8.89 profit per share vs. $3.51 risk per share)