On Thursday, JPMorgan increased its stock price target for Dick's Sporting Goods (NYSE:DKS) to $197 from $180, while keeping a Neutral rating on the stock. The firm's analyst highlighted Dick's Sporting Goods' strong performance, noting a significant comparable sales (comp) increase of 2.8% compared to the Street's 0.6% expectation.
The company's earnings per share (EPS) also surpassed estimates, coming in at $3.85, which beat the Street-high forecast of $3.62.
The analyst pointed out that Dick's Sporting Goods delivered a conservative guidance, placing the Street's expectations at the lower end of their forecast. The higher end of the guidance accounts for the fourth quarter's upside, as anticipated.
The report also mentioned that Dick's Sporting Goods is not factoring share repurchases into their guidance, which could mean an additional $0.30 of EPS that the Street is expecting from buybacks.
Despite the strong results, the company signaled potential margin pressures in the first quarter due to increased preopening and advertising expenses, along with a projected 40 basis point shrink annualization.
However, the outlook for the first half of 2024 remains positive with expected benefits from higher advertising campaigns, a potential boost from the Olympics, and two comp points from House of Sport remodel laps. Favorable weather and tax refund dynamics could also play a role.
The analyst also noted the structural strengths of Dick's Sporting Goods, including the ongoing casualization trend, a clean inventory position, and the continued benefits from its Scorecard loyalty program. Sales volatility over the past year was mostly attributed to weather, with Dick's Sporting Goods maintaining strength across its income cohorts.
In terms of valuation, the analyst expressed that the challenge lies in the current high valuation of retail stocks, which might see a correction as the market progresses into spring.
The new price target of $197 is based on a 2025 earnings per share forecast of $15.11, applying a 13x price-to-earnings (PE) ratio and a 7.6x enterprise value to EBITDA (EV/EBITDA) multiple, which aligns with the upper end of the current valuation range for the analyst's coverage universe.
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