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Bear of the Day: DICKS Sporting Goods (DKS)

·4-min read

DICK’S Sporting Goods (DKS) is a Zacks Rank #5 (Strong Sell) that operates as a sporting goods retailer. The compnay stores and online website offer athletic shoes, apparel, accessories and a broad selection of outdoor and athletic equipment for team sports, fitness, camping, fishing, water sports and more.

After falling almost 50% on the year, the stock has seen a substantial rally. Now over 65% off the 2022 lows, investors should be looking to take some profits.

The company has earnings in late August. With estimates dropping across the board, the chance for a major pullback is high.

About the Company

DICK'S is headquartered in Coraopolis, PA. The company was founded in 1948 and employs over 17,000. In addition to their traditional retail stores, DICK’S also owns operates Golf Galaxy and Field & Stream stores as well as Team Sports HQ. It also operates all-in-one youth sports digital platform, which offer scheduling, communications and live scorekeeping via the GameChanger mobile apps, free league management services, custom uniforms and fan wear.

DKS is valued at $8.6 billion and has a Forward PE of 10. The company holds a Zacks Style Score of “A” in Value, but “D” in Growth and Momentum. The stock pays out a dividend of 1.8%.

Q1 Earnings

The company reported EPS in late May, seeing a beat of 17%. However, the company cut their guidance saying it was appropriate to be cautious due to macroeconomic conditions.

The company reported Q1 at 2.85 v the $2.43 expected. This was the eighth straight beat for DKS, which came with a slight revenue beat.

The company cut FY22 to $9.15-$11.70 v the $12.56 expected. Same store sales are now seen at negative 8% to negative 2% year over year, down from the prior flat y/y number expected.

Estimates

Because of the big guide down, analyst have dropped numbers drastically since earnings.

Over the last 90 days, estimates have dropped 17% for the current quarter, from $4.20 to $3.51. For the current year, they have been lowered from $12.62 to $10.77, or 15%.

With the drop in estimates a handful of firms lowered their price targets.

UBS went from $120 to $85, Wedbush lowered to $110 from $140, while Stifel Nicolaus went to $75 from $113.

Despite the negativity, the stock rallied with the broad market and is almost back to unchanged on the year.

Investors seem to be getting a little to excited, with a big earnings risk around the corner when the company reports on August 23rd.

Technical Take

Looking at the chart, the stock bounced right where it was supposed to back in May. The 61.8% retracement drawn from COVID lows to 2021 highs held up perfectly. Since that low in May, the stock has rallied almost 70%.

The bulls have run out the shorts as price is above the 200-day moving average. However, investors should be very cautious if price breaks back below that level.

The $110-120 level saw a sideways trade earlier in the year, so there is likely a lot of supply in that area. Sellers will likely show up soon and the bears will press the stock lower if that 200-day MA fails.

Look for lower prices from here, with the 21-day MA offering support at $96 and the 50-day at $86. For those looking for another Fibonacci retracement, the $80-85 area is the buy zone.

In Summary

DKS has seen a fantastic rally over the last two months, but with earnings risk coming in a couple weeks, investors should be taking profits. Estimates have not improved since the May quarter, so to expect much upside from current levels should no be expected.

For now, a better option in the sector might be Ulta Beauty (ULTA). The stock is a Zacks Rank #2 (Buy) that is coming off a 42% EPS beat.     


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