Bear of the Day: DICKS Sporting Goods (DKS) – August 16, 2022
DICK’S sporting goods (DCS – free report) is a Zacks Rank #5 (Strong Sell) operating as a sporting goods retailer. The Company’s stores and online website offer athletic footwear, apparel, accessories and a wide selection of outdoor and athletic gear for team sports, fitness, camping, fishing, water sports and more.
After falling nearly 50% for the year, the stock has staged a significant rally. Now that it’s over 65% below the 2022 lows, investors should look to take profits.
The company has profits at the end of August. With estimates generally falling, the chance of 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 people. In addition to its traditional retail stores, DICK’S also owns Golf Galaxy and Field & Stream stores and Team Sports HQ. It also operates an all-in-one digital youth sports platform offering scheduling, communication and live scores via the GameChanger mobile apps, free league management services, custom uniforms and fan apparel.
DKS is valued at $8.6 billion and has a forward PE of 10. The company has a Zacks Style Score of “A” for value but “D” for growth and momentum. The stock pays a dividend of 1.8%.
Result Q1
The company reported earnings per share of 17% at the end of May. However, the company lowered its forecast and said it was appropriate to be cautious due to macroeconomic conditions.
The company reported Q1 at $2.85 versus $2.43 expected. This was the eighth consecutive hit for DKS, which came with a slight hit in sales.
The company lowered FY22 to $9.15-$11.70 versus $12.56 expected. Same-store sales are now at minus 8% to minus 2% year over year, down from the previously expected flat year over year figure.
estimates
Due to the major downtrend, analysts have cut the numbers drastically since the gains.
Over the past 90 days, estimates for the current quarter have fallen 17% from $4.20 to $3.51. For the year to date they have been cut from $12.62 to $10.77 or 15%.
As estimates fell, a handful of companies lowered their price targets.
UBS rose from $120 to $85, Wedbush fell from $140 to $110, while Stifel Nicolaus rose from $113 to $75.
Despite the negativity, the stock rallied with the broader market and is almost flat from a year ago.
Investors appear to be a little too excited as a major earnings risk is imminent when the company reports on Aug. 23approx.
Technical recording
Looking at the chart, the stock rebounded right where it was supposed to be declining in May. The 61.8% retracement drawn from the COVID lows to the 2021 highs has held perfectly. Since that May low, the stock is up nearly 70%.
The bulls have run out of shorts as the price is above the 200-day moving average. However, investors should be very cautious if the price dips back below this level.
The $110-120 level saw sideways trading earlier in the year so there is likely to be a lot of supply in this area. Sellers are likely to emerge soon and the bears will push the stock lower if this 200-day MA fails.
Look for lower prices from here, with the 21-day MA offering support at $96 and the 50-day MA at $86. For those looking for another Fibonacci retracement, the $80-85 area is the buy zone.
in summary
DKS has had a fantastic rally over the past two months, but with profit risk materializing in a couple of weeks, investors should take profits. Estimates have not improved since the May quarter so one should not expect much upside from current levels.
At the moment, Ulta Beauty could be a better option in this sector (ULTA – free report). The stock is a Zacks rank #2 (Buy) posting a 42% EPS hit.