Back to top

Image: Bigstock

Why Dick's Sporting Goods (DKS) Could be a Great Portfolio Addition

Read MoreHide Full Article

Dick’s Sporting Goods (DKS - Free Report) is a growing name that investors should consider adding to the portfolio for exposure to the retail industry. As COVID-19 eases and vaccinations roll out, the retailer is expected to see increased demand for its sports equipment and other outdoor-related products such as exercise apparel.

In the volatile market we’re currently facing due to geopolitical issues and a cloudy economic forecast, picking stocks within the market that have consistently reported strong earnings and are on a path of recovery is a great way to prepare for the rebound.

DKS is one of these names, consistently crushing earnings estimates quarter after quarter and operating within a recovering industry. Let’s take a look at the sports retailer to see why it could be a good addition to your portfolio amid a volatile market.

Basic Rundown

Dick’s Sporting Goods is a leading omni-channel retailer offering an extensive assortment of authentic, high-quality sports equipment, apparel, footwear, and accessories.

Customers also have the ability to find products through a content-rich e-commerce platform, integrated within the company’s network to provide convenience and the luxury of a 24-hour storefront.

The company operates four different sizes of stores, each one specifically sized to the market it’s located within. As of October 2021, it had 734 storefronts across 47 states.

Performance Comparison

It’s no secret that the general market has experienced sharp declines across the board and that the outlook for 2022 has significantly gone downhill, spooking investors. However, the sporting goods retailer has remained stronger than most and has a clearer path to recovery due to COVID-19 vaccinations rolling out, getting more people outdoors and bolstering demand for its products and services.

Year-to-date, DKS has been less affected by the market’s volatility and has declined 9.5%, while the S&P 500 has lost nearly 12% in value. As we can see, price action for the sports retailer has been stronger, providing better defense for investors sailing through a rough time in the market.

Dick’s Sporting Goods has outshined all others within the Zacks Retail and Wholesale sector as well. Year-to-date, the sector has been beaten down along with the general market, causing it to decline almost 17%, Not only has DKS been stronger than the general market, but it is also outpacing its sector as well.

Zacks Investment Research
Image Source: Zacks Investment Research

Earnings

Earnings results for the company have been nothing short of rock-solid over the last four quarters. Including Tuesday’s reported earnings, the average surprise over the last four reports has been a staggering 102%. Earnings have been growing quickly, adding more conviction for the recovery of the industry post-COVID-19. In its most recent earnings report, DKS beat Q4 estimates by 2.8%, or $0.10, raising its quarterly EPS to $3.64 per share.

 

Zacks Investment Research
Image Source: Zacks Investment Research

The company also displayed solid growth in revenue, beating the quarterly $3.3 billion estimate by nearly 1.5%, generating sales of $3.35 billion for the quarter. Sales for DKS have been on a hot streak, beating estimates in all four previous reports and averaging a sales surprise of roughly 15% during this time.

Revenues for FY22 came in at $12.3 billion, a 28.3% increase from FY21. EPS for the year was $15.70 per share, representing a massive 143% jump from FY21.

Valuation

Currently, Dick’s has a forward 12-month P/E ratio of 8.9X, which is 65% off its high of 24.8X in June of 2020, 105% higher than its low of 4.3X in March of 2020 at the beginning of the pandemic, and 22% lower than the median 11.5X during the past five years. The retailer’s P/E ratio is also much lower than the current 21.8X forward earnings multiple of the Zacks Retail-Wholesale sector.

Zacks Investment Research
Image Source: Zacks Investment Research

This tells me that shares of the company are currently trading very cheaply relative to its history and are undervalued at the moment. It seems that price has yet to catch up with the earnings picture, providing an excellent opportunity to scoop up shares at a low P/E.

The sports retailer rewards its shareholders via its 1.8% annual dividend yield. Dick’s has increased its dividend each of the past five years, further proving that it can provide shareholder value in the long run. Its dividend yield is more than enough to beat Zacks Retail-Wholesale Sector dividend yield average of 0.85% as well.

Going Back to Normal

As COVID-19 restrictions ease and the pandemic seeming to be in retreat mode for now, outdoor leisure activities will once again be a major part of our everyday life.

This is where Dick’s Sporting Goods will thrive. The industry as a whole has been projected to completely recover in 2022, further strengthening my conviction of this stock being one of the top re-opening plays.

During the last two years, DKS has managed to consistently crush earnings reports and revenue estimates, and currently boasts an enticingly low valuation.

At its current state, I believe that DKS provides investors with a great opportunity for exposure to a recovering industry and is a stock that has held up much stronger year-to-date than all its peers and the general market. DKS has a Value Style Score of A, a Growth Style Score of B, and a Momentum Style Score of A. Its overall VGM Score is an A and is a Zacks Rank #3 (Hold).


In-Depth Zacks Research for the Tickers Above


Normally $25 each - click below to receive one report FREE:


DICK'S Sporting Goods, Inc. (DKS) - free report >>