Dick’s Sporting Goods Pulls Back For No Good Reason At All
Investors worried about insider selling at Dick’s Sporting Goods (NYSE: DKS) are better served turning their attention to the institutions. While insiders were selling earlier in the year their sales have slowed to nil in the current quarter and are only worth 0.5% of the shares. Institutions, on the other hand, have been shedding their shares all month and may drive share prices lower. The caveat is that Insidertrades.com reveals insiders and institutions own nearly 100% of the stock so we wouldn’t count on it.
Shares of Dick’s Sporting Goods (NYSE: DKS) pulled back to support following the Q3 release and, by our assessment, there is no good reason for the move other than profit-taking and rotation. The stock is trading within a consolidation range that formed at all-time high levels and after a sustained rally so some rotation is to be expected. More importantly, it looks like the uptrend in the stock is still intact so we are viewing the pullback as a buying opportunity. With revenue and earnings above expectation, the guidance raised, repurchases, and dividend growth on deck it is our opinion shares of Dick’s Sporting Goods will be setting new all-time highs in 2022.
Dick’s Sporting Goods Has Strong Quarter, Shares Fall
Dick’s Sporting Goods had a record-setting 3rd quarter and delivered a report that exceeded in every way that counts. The company reported $2.75 billion in consolidated revenue which is up 13.9% over last year, 40% versus 2019, and beat the analyst’s consensus by over 1000 basis points. The outperformance is noteworthy not just for its magnitude but also for the fact the analysts have been raising their estimates setting a high bar for the company to beat. On a comp basis, sales are up 11.2% and aided by strong sales through eCommerce channels. eCommerce sales are up a slim 1% YOY but 97% versus 2-year’s ago. In terms of the net, eCommerce penetration is up 600 basis points over the past two years and we see it underpinning business and growth for the foreseeable future.
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Moving down to the earnings the news gets better with both the gross and operating margins expanding. The gross margin widened by 355 basis points to help drive a 400 basis point increase in operating profit. This resulted in incredible earnings leverage which drove GAAP and adjusted EPS up more than 50% each. The GAAP $2.78 is up 51% and beat the consensus by $0.85 while the adjusted earnings grew a more substantial 59% and beat by more than $1.00. In our view, this means investors should expect share buybacks to increase over the next year and for dividend growth to remain robust.
Looking forward, the guidance is equally good but may not have packed quite the bang traders were looking for. While the guidance is higher and assumes above-consensus performance in the 4th quarter it looks like the pace of growth will be tepid. The company is calling for $12.12 to $12.19 billion in revenue which assumes about 1.5% growth over the holiday season. That’s very weak compared to the 8.5% to 10.5% holiday gain predicted by industry insiders.
Dick’s Investors Score With Capital Returns
Dick’s Sporting Goods is a solid dividend payer and grower with 7 years of increases and a CAGR of 20%. This is coupled with a 13.18% payout ratio versus the too-low consensus figures and a fortress balance sheet. The company is net-debt but carries low debt and a leverage ratio below 0.35X FCF and FCF is rising. The company may not continue increasing at a 20% rate but we are expecting robust increases to continue, as well as share repurchases. The company repurchased $273.4 million in shares during the quarter and has $605 million left or about 4.86% of the market cap.
The Technical Outlook: Dick’s Sporting Goods Is Testing Support
Shares of Dick’s Sporting Goods fell more than 5.0% in the wake of the Q3 report and guidance update but support appears to be strong at this level. The price action formed a doji candle that indicates the uptrend is not only intact but that short-term traders are back in charge. In this scenario, we see price action maintaining this level and then moving higher before the end of the year. If not, shares of Dick’s may continue to wallow within the range and ultimately break the uptrend that began ten months ago.
Companies in This Article:
|Company||Current Price||Price Change||Dividend Yield||P/E Ratio||Consensus Rating||Consensus Price Target|
|DICK'S Sporting Goods (DKS)||$128.50||+0.9%||1.36%||9.94||Hold||$126.53|