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Bull of the Day: DICKS Sporting Goods (DKS)

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DICK’S Sporting Goods (DKS - Free Report) is a Zacks #1 (Strong Buy) that operates as a sporting goods retailer, offering alethic shoes, apparel, accessories, and outdoor and athletic equipment. The company caters to consumers interested in team sports, fitness, camping, fishing, tennis, golf, water sports and more.

The company hit a home run last quarter, beating on both the top and bottom lines. The stock gapped higher after EPS and has continued its bull run as it approaches all-time highs made way back in 2016.

About the Company

DICK’S Sporting Goods operates over 700 stores and has 15,000 full time employees. It is headquartered in Coraopolis, Pennsylvania and was founded in 1948.

The company has a market cap of about $5 Billion and has Zacks Style Scores of “A” in Growth and “A” in Value. The stock pays a dividend of 2% and has Forward PE is 16.

DICK'S retail stores offer nationally recognized brands, including Callaway Golf adidas, The North Face, Asics, Under Armor, Nike, Columbia and Remington.

Q2 Earnings

In late August, DICK’S reported a topline beat and a positive EPS surprise of 159%. Consolidated Same Store Sales came in at 20.7 %, while e-commerce made up 30 % of total net sales v 12% last year. Revenues from eCommerce were up 194% year over year as consumers shifted to online shopping during the pandemic.

CEO Edward Stack had the following comments on the quarter:

“The favorable shifts in consumer demand that drove our strong comps during Q2 have continued into Q3 but have been partially offset by softness across key back-to-school categories because of the uncertain timing of a return to school and fall team sports. Taken together, through the first three weeks of Q3, our consolidated comp sales have increased 11%, which demonstrates the strength of our diverse category portfolio.”

Estimates

Over the last 60 days, estimates have surged higher. For the current quarter, we have seen numbers raised by 256%, from $0.23 to $0.82. For next year, we have seen a 33% move higher in that same time frame.

Analysts have taken price targets higher since earnings, citing underappreciated earnings power and low valuation.

The Pandemic Atmosphere

With consumers adjusting to the current COVID environment, the surge in e-commerce sales has been similar to holiday levels. The pandemic has forced people to change the way they get exercise and recreation. The result was a search online for dumbbells, golf clubs, running shoes or camping gear. DICK’S online presence allowed the company to thrive and while they will be hit in the back to school sales area, the pandemic environment will help offset those lost sales.

The Technicals

The stock was stuck in the mid-$30 area for two years until it broke out towards the end of 2019. Investors pushed the stock up to the $50 level, but the COVID sell off earlier in the year dropped the it all the way to $14. Like most stocks, it snaped back quickly to the $40 area.

The stock continued to grind higher above $40 until last quarters earnings helped it shoot above the $50 level. The bulls have recently bought DKS up to $60, just a couple percentage points short of its 2016 highs of $62.88.

The stock is significantly above its moving averages with the 50-day at $51.60 and the 200-day all the way down at $40.25. For fans of Fibonacci retracement levels, the 161.8% target, drawn 2020 highs to lows, is at $72. Investors looking to take some profits should eye those levels.

Bottom Line

While retail stores have struggled during the pandemic, those that adjusted well to digital sales thrived. Additionally, when the business has products that are in high demand, record sales are being achieved. For DICK’S they benefited in both areas. While the pandemic surge might slow, the company should continue to see growth as their stores come back and the pandemic ends. In the meantime, the digital side of the business will continue to thrive and become a permanent way people shop at DICK’S.

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