Morningstar

The Market Is Excessively Penalizing Dick's

An emphasis on performance goods, improved online sales capabilities, an expanded private label assortment, and youth sports emphasis are enough to put the company on the list of retailer survivors the next 10 years.

Securities In This Article
Dick's Sporting Goods Inc
(DKS)

Admittedly,

We're planning to reduce our $62 fair value by about 10% to account for the softer sales outlook (full-year comps are expected to increase 1%-3% versus earlier expectations of 2%-3%, partly attributed to Camping World's decision to close half of the Gander Mountain stores it recently acquired) and new store opening plans (management plans to slow store openings to 5-10 locations by 2019), offset somewhat by lower corporate tax rate assumptions starting in 2018 (our full-year adjusted EPS forecast will remain aligned with the midpoint of guidance calling for $3.65-$3.75). We believe our updated longer-term assumptions, including low- to mid-single-digit top-line growth and operating margins remaining in the 7%-8% range the next 10 years (compared with 7.4% this year), strike a balance between retail industry structural changes and the company's various strategies. While fundamentals will likely be uneven the next few quarters, we believe the market has excessively punished this name.

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About the Author

R.J. Hottovy

Sector Strategist
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R.J. Hottovy, CFA, is a consumer strategist for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc. He is responsible for consumer discretionary and staples research. He has covered the consumer sector as an analyst and director of global consumer equity research for Morningstar since joining the company in 2008, and specializes in a broad range of consumer categories including restaurants, footwear and apparel retailers, consumer electronics retailers, fitness clubs, home improvement and furnishing retailers, and consumer product manufacturers.

Before joining Morningstar, Hottovy was a director and senior stock analyst for Next Generation Equity and an analyst for William Blair & Co., specializing in a wide range of retail and consumer product companies. He also spent two years at Deutsche Bank, covering waste management, water utilities, and equipment rental stocks.

Hottovy holds a bachelor’s degree in finance and a second degree in computer applications from the University of Notre Dame, where he graduated magna cum laude. He also holds the Chartered Financial Analyst® designation and is a member of the CFA Institute and the CFA Society of Chicago.

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