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.
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.
Morningstar Premium Members gain exclusive access to our full analyst reports, including fair value estimates, bull and bear breakdowns, and risk analyses. Not a Premium Member? Get this and other reports immediately when you try Morningstar Premium free for 14 days.