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

Finviz

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

ORATS

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

Stockcharts.com

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