On Friday, Telsey Advisory Group adjusted its outlook on Academy Sports & Outdoors Inc. (NASDAQ:ASO), raising the stock's price target to $83.00 from the previous $70.00, while maintaining an Outperform rating.
The firm's analysis recognized the challenges faced by the retailer in the fourth quarter of 2023 due to a weaker consumer environment and a highly promotional market. These factors were somewhat balanced by the company's focus on value and strong performance during the Black Friday period.
The firm noted that Academy Sports & Outdoors has managed its inventory and markdowns effectively, contributing to a stable gross margin. As the company moves into 2024, expectations are for sales to remain under pressure in the first quarter, with a forecast for stabilization in the second quarter and a return to growth in the second half of the year.
The retailer's ability to execute its business strategy effectively has been highlighted, along with the potential for expansion of its store base in the coming years. The firm also pointed to Academy's compelling merchandise assortment as a strength that will benefit the company once consumer health improves.
Despite the stock's significant performance, having increased by 40% since the third-quarter report on November 30, in contrast to the S&P 500 Index's 13% rise, the valuation is still seen as attractive. The stock is currently trading at approximately 9.5 times the 2024 FactSet consensus estimates. Telsey anticipates further multiple expansion as the company's comparable sales turn positive.
The price target increase to $83 is based on applying a price-to-earnings (P/E) multiple of around 9.5 times to Telsey's 2025 earnings per share estimate of $8.70. This P/E multiple aligns with the stock's current trading levels. Previously, the firm had valued the stock using a 9.0 times multiple of its 2024 earnings per share estimate.
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