On Wednesday, Telsey Advisory Group adjusted its outlook for Hibbett Sports (NASDAQ:HIBB), a leading athletic-inspired fashion retailer, by increasing the price target from $73.00 to $82.00. The firm maintained its Outperform rating on the stock. The decision comes in light of the company's expected performance, which reflects a positive response from consumers to new and promotional athletic footwear.
The analyst noted that Hibbett Sports is likely to have benefited from similar consumer behaviors that led to a better-than-expected comparable store sales (comp) performance for Foot Locker (NYSE:FL) in the fourth quarter of 2023.
Foot Locker's comp of (0.7%) surpassed the anticipated (7%)-(9%), suggesting a favorable environment for Hibbett as well. However, Hibbett was up against a more challenging year-over-year comparison, having achieved a 15.5% comp increase the previous year, compared to Foot Locker's 4.2%.
Despite the tough comparison, Hibbett is expected to report a slight decline in fourth-quarter comp year-over-year of (1.5%). Looking forward into 2024, the analyst pointed out that consumer health remains under pressure, but product innovation will be crucial for sales growth. Hibbett's partnership with Nike (NYSE:NKE) through its connected membership is anticipated to provide an advantage in product allocation.
The firm anticipates Hibbett's operating margin to stabilize around 8%, following two years of contraction from a high of 13.5% in 2021. The analyst expressed confidence in Hibbett's market position, highlighting its unique presence in small and underserved markets.
Despite a significant increase in stock value, up 40% since the third-quarter report on November 21, the valuation is still considered attractive at 9.2x the 2024 FactSet consensus estimate.
The revised price target of $82 is based on applying a price-to-earnings (P/E) multiple of approximately 8.0x to the firm's 2025 earnings per share (EPS) estimate of $10.20.
This adjustment reflects a shift towards higher valuations for consumer stocks, suggesting that Hibbett's shares could trend back to its pre-pandemic (2016-2019) fiscal year 2 P/E multiple of around 11x, as opposed to the three-year average of approximately 7x.
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