Rumors About Dick’s Sporting Goods Going Private Trigger Mixed Ratings

Rumors about the possibility of Dick’s Sporting Goods (NYSE: DKS) going private caused the company’s shares to surge 12% on Wednesday, January 7th.

Reuters reported that the sporting goods store is exploring buyout options to go private. The company last released quarterly results in November when the store posted only a 1.1% increase in consolidated same store sales. Net income fell to $49 million, a 3.2% year-over-year decrease.

Dick's Sporting Goods Inc (NYSE:DKS) is an attractive buy for private equity firms due its $6.4 billion market cap, low levels of debt, and nearly 600 established locations.

The sporting goods company received some negative publicity in October when a 12-year old girl pointed out that Dick’s Sporting Goods’ basketball catalog did not feature any females. Dick’s responded with an apology and a promise to do better by promoting both men and women in future publications. Dick’s took this promise to heart as the company has been trying to expand their women’s market by teaming up with Carrie Underwood to create an affordable and attractive athletic collection for women. The line will be released in March.

Rumors about a potential buyout triggered mixed ratings from analysts. On January 9th, analyst Christopher Svezia of Susquehanna downgraded DKS from Positive to Neutral. The analyst noted, “We continue to see some upside given manageable near-term (4Q) expectations and potential for healthy earnings recovery in FY15, but ultimately not enough to meet our +15% threshold.”

Christopher Svezia has a 70% overall success rate recommending stocks from the past year with a +19.8% average return per recommendation.



Analyst Jim Chartier of Monness Crespi Hardt was more optimistic on DKS, maintaining a Buy rating and raising his price target from $56 to $60 on January 9th. Chartier attributed the “lower than anticipated sales and earnings” in 2014 to stagnant sales in the golf and hunting industries and investors’ worries surrounding “the company’s difficult same-store sales comparison in 4QFY14.” However, Chartier continued, “We believe the potential for a private equity sale raises the floor in the stock in the near term. And, we expect easy sales and margin comparisons in 1HFY15 will attract investors if the company reports in line or better 4QFY14 results. Accordingly, we believe a higher valuation multiple is appropriate. The stock is trading at 17.6x our ntm EPS estimate of $3.11, in line with its three year average valuation of 17.7x. We are raising our price target to $60 (from $56) based on 18.5x our FY15 EPS estimate of $3.25.”

Jim Chartier has a 65% overall success rate recommending stocks from the past year with a +11.4% average return per recommendation.



On average, the top analyst consensus for Dick’s Sporting Goods on TipRanks is Hold.

Disclosure: All recommendations for DKS sources from TipRanks.