DICK’S Sporting Goods Stock: Playing Defense Ahead of Q2 Earnings (DKS)

justin sullivan

The pandemic has been a major tailwind for many individual sports and for dating in general. Dick’s Sporting Goods (NYSE: DKS) has undoubtedly benefited from people preparing to “step into the world”. Golf, hiking, cycling and other wear is special strengths of the company which also has a solid omnichannel presence. Yet, like many retailers in this environment, inventory management is a major challenge right now. The stock is posting a strong 3-month performance as investors remain bullish on DKS execution. Mixed signals from Nike (NKE) and Adidas (OTCQX:ADDYY) earlier this earnings season creates additional uncertainty ahead of next week’s second-quarter earnings report.

Three-Month Performance Heatmap: DKS Stands Out in Retail

Three-Month Performance Heatmap: DKS Stands Out in Retail


According to Bank of America Global Research, Dick’s Sporting Goods, Inc. is a full-line sporting goods retailer that offers a wide assortment of branded and private label athletic apparel, footwear and equipment in a large format of store. The Company also operates specialty stand-alone golf stores under the Golf Galaxy name and an outdoor specialty store under the Field & Stream banner.

The $9 billion Pennsylvania-based specialty retail company in the consumer discretionary sector has a 12-month price-to-earnings ratio of just 8.7, according to The Wall Street Journal. Its dividend yield is 1.7%, roughly equal to that of the S&P 500. Importantly ahead of next week’s earnings, the stock’s short-term interest rate ratio is very high at 27.3 %. DKS is part of the equally weighted S&P Retail ETF (XRT).

BofA analysts see DKS earnings surge abnormally this year and then decline in 2023. A more stable EPS growth rate is seen in 2024 and 2025. The company paid a special dividend nearly a year ago, investors should therefore be on the lookout for another possible distribution, but that is not the forecast. DKS trades at a reasonable EV/EBITDA multiple and generates strong free cash flow. The valuation picture therefore seems favourable.

DKS earnings, dividends, valuation forecasts

DKS earnings, dividends, valuation forecasts

BofA Global Search

DKS has a confirmed earnings date of Tuesday, August 23 BMO, according to Wall Street Horizon. A conference call begins that morning at 10:00 a.m. ET. You can listen live here.

DICK’S Corporate Events Calendar: Earnings at Your Fingertips

DICK'S Corporate Events Calendar: Earnings at Your Fingertips

wall street skyline

Looking closer at Tuesday’s second-quarter earnings report, analysts expect EPS to be $3.55, according to data gathered by Option Research and Technology Services. Traders valued a 10.5% profit-related stock price change using the at-the-money straddle on the options with the earliest expiration. DKS has exceeded earnings forecasts for the past eight quarters using ORATS data.

DKS Options Information: A Big Implied Move

DKS Options Information: A Big Implied Move


The technical grip

DKS has rebounded impressively from its May low. Having nearly doubled in less than three months, equities found some resistance in an area of ​​congestion between January and February. The break coincides with its October 2021 low. What I like, however, is that the stock has climbed above its 200-day moving average. While most stocks have a negative sloping 200-dma, the long-term trend of the DKS is not that bearish.

I see support in the mid-90s if we see a pullback after earnings. I think the stock will indeed pull back on this first attempt to climb above the year-to-date high. It’s definitely a buy-the-dip candidate for me, though.

DKS: Stocks pause below its 2022 peak

DKS: Stocks pause below its 2022 peak


The essential

DKS looks good from a fundamental demand story as well as with its valuation. Technically, stocks could pull back towards the 200-dma if we see a negative earnings reaction, based on implied moves in the options market.

James T. Quintero