Cash In on Hibbett Sports

We keep our Sell recommendation on Hibbett Sports, Inc. (HIBB - Analyst Report), as we believe despite the sporting-goods retailer's better-than-expected first quarter results, the downside risk still outweighs the upside for the shares. We believe the difficult consumer spending environment will put pressure on the company's sales trends for the remainder of 2008 and expect its profit margins to contract further.

In recent times, Hibbett's business trends have not been strong as cash-strapped customers cut their discretionary spending. Another worry for Hibbett is that industry leader, Dick's Sporting Goods (DKS - Snapshot Report), is expanding into smaller markets. A key part of Hibbett's growth story is that its stores had few competitive pressures. If this trend continues and big-box retailers enter smaller markets, Hibbett will not be able to meet current earnings estimates.

HIBB shares trade at a premium to its industry peers and nearly 22x our fiscal 2009 EPS estimate. Given the difficult retail environment, the multiple does not look sustainable and we think this premium is ripe for a contraction. In our view, HIBB shares could decline to 15x our 2009 EPS estimate or $14 per share. We thus raise our target price to $14 from $10.

Read the full analyst report on HIBB