Dick's: One of the Few Retail Growth Stories in 2017
The margin expansion opportunity for this specialty retailer will become more apparent as 2017 progresses.
While investments are likely front-loaded and guidance only suggests modest margin expansion versus full-year 2016 adjusted operating margins of 7.1%, we believe Dick's margin expansion opportunity will become more apparent as 2017 progresses. While details are still developing, we see the merit in Dick's vendor consolidation plans, where the company will eliminate as much of 20% of its vendors and replace their products with more exclusive products from existing top 10 vendors as well as Dick's own private label products (where management expects $1 billion in contribution this year), both of which have positive growth and margin implications. We continue to see a path to operating margins in the 9% range the next five years that the market has not priced into the stock at this point. We're not planning material changes to our $62 fair value estimate and view shares as undervalued after today's pullback.
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