Academy Sports + Outdoors Looks Hot For A Summer Rebound

After a sharp downturn in share prices, the bottom is in for Academy Sports + Outdoors NASDAQ: ASO. The chart suggests some were surprised by the weakness, but a more significant portion of the market expected much worse. The takeaway is that price action shows a floor at $47.50, and the market is set up for a rebound. This may not lead to a sustained rally and a complete reversal, but a 10% to 20% rebound could unfold by mid to late summer. 

Among the potential drivers is the sell-side support, which is substantial. The institutions own about 95% of the company and, on balance, haven’t been shedding positions. The worst that can be said of recent activity is that it is mixed, which suggests rotation within the group. Some are shedding, and some add to positions, but the net result is steady support. This is compounded by the analysts who have been lowering their targets but still view the stock bullishly. 

The Marketbeat.com consensus rating is Moderate Buy, with a price target of $73. That’s 50% above the current price action and has firmed over the last month. The caveat is that the sole update released immediately following the Q1 release is a price target reduction from JPMorgan Chase & Co. Even so, they see the stock trading about 20% above the current action, and the lowest price target is only $1 less. 

Academy Sports + Outdoors Issues Weak Report: Market Buys The Dip

Academy Sports + Outdoors issued a weak report and lowered its guidance, but the market yawned. The 5.7% decline in revenue missed the consensus by several hundred basis points on a 7.3% decline in comp sales. The whiff is partly due to a slowdown in store openings, the company opened only a single store during the quarter, but the pace of expansion is expected to pick up in the 2nd half. Another factor is the weather which echoes news from Sportsman’s Warehouse NASDAQ: SPWH, and macroeconomic pressures. 

The margin news is also not good. The gross and operating margins contracted to lead the adjusted EPS at $1.30 or $0.34, shy of expectations and down $0.43 compared to last year. Given the weakness, the guidance verges on OK and leaves the EPS range within striking distance of the original on an adjusted basis. Assuming the company can rebound from early-year weakness, it could outperform its guidance for the remainder of the year. Competitor Dick’s Sporting Goods NASDAQ: DKS had a much different quarter, supported by strength in all channels, which suggests underlying strength in the sporting goods industry.

Academy Sports + Outdoors: Disciplined Capital Returns 

Academy had a tough quarter and guided lower, but cash flow remains strong. The company was able to pay down debt during the quarter and increase its dividend while buying back shares. The repurchases were cut by 45% compared to last year, which is unsurprising, but they shouldn't evaporate completely. The dividend is worth only 0.65% in yield but is growing and has a long trajectory for future increases. The company is paying only 5% of its earnings, which could increase the payout for many years.

The short interest is high and one of the drivers of price action. Short interest may lead to volatility in the near term, but the market appears to have a solid floor at $47.50. Assuming this floor holds, the market should move sideways in consolidation. Range-bound trading could get the market up to the $55 to $60 range and be consistent with the low end of the analysts' expectations. A complete reversal may form later in the year if the results improve.