Dick’s Sporting Goods Deserves A Higher Price Multiple

Key Points

• Dick's Sporting Goods is immune from the malaise gripping the discretionary sector. 
• The company continues to outperform consensus and it pays a healthy dividend. 
• The analysts see the stock moving higher on a multiple expansion. 

Reports from names like Walmart NYSE: WMT, Target NYSE: TGT, Home Depot NYSE: HD, Lowe’s NYSE: LOW, and Foot Locker NYSE: FL have signaled a new reality for discretionary spending that Dick’s Sporting Goods NYSE: DKS is immune from. While the others speak of shifting trends that have cut into discretionary spending and resulted in weak or weakened guidance, Dick’s continues to grow and outperform its consensus estimate. This is not a surprise. The company has been outperforming consensus for many years due to relentless execution by management. That, coupled with its dividend percentage, the payout ratio, and the outlook for distribution growth, make the 13.5X that the stock trades for cheap indeed. 

“Even as consumers face macroeconomic uncertainties, our athletes have continued to prioritize sport and rely on DICK'S to meet their needs, and we continue to gain market share,” said Lauren Hobart, president of Dick’s Sporting Goods. 

Dick’s Sporting Goods Dividend Attracts Buy And Hold Investors

How does Dick’s Sporting Goods dividend stack up? The stock pays more than 3.15%, trading shares at recent highs. This is above Target and Walmart, the next go-to names for general sporting goods needs, and both trade at significantly higher multiples. Other sporting good-specific names like Hibbett NASDAQ: HIBB also offer value but don’t pay investors to own them similarly. Regarding safety and the growth outlook?

Dick’s Sporting Goods is paying only 16% of the EPS consensus, which may be a conservative estimate, and it’s been increasing for 8 years at a high-double-digit pace. Based on the numbers, this stock could easily become a Dividend Aristocrat, which is a trajectory that will support upward movement in the price over time.

Those stats attract long-term buy-and-hold money, as seen in the institutional and analyst activity. The institutions have been trimming holdings over the past few quarters as the stock price returned to its pandemic highs, but they still own 75% of the company. Their sentiment may change now that Q1 results are in; analysts think the stock could move much higher. 

Marketbeat’s analyst-tracking tools haven’t picked up any revisions since the Q1 release, but the trend in sentiment is bullish. There are 23 analysts with current ratings that have the stock pegged at Moderate Buy, up from Hold last year, and the price target is trending higher. The consensus target is above $156, more than 20% above the price. That’s well into the new all-time high territory and puts the stock at a significantly higher valuation than it is trading for now. 

Dick’s Sporting Goods Had A Great Quarter

Dick’s had a great quarter, with revenue up 5.2% compared to last year. The revenue beat consensus by 150 basis points on a strong comp gain, and margins widened. The company says comps are up on ticket average and transaction count, unlike what’s been reported by others. Earnings came in at $3.40 or $0.19 above consensus and are up 19% compared to the 5.2% top-line gain. The icing on the cake is the balance sheet news which shows cash down but inventories up, debt down, and the company is net-cash. This aligns with the dividend outlook and allows for share repurchases. 

The chart is iffy. Dicky’s has broken the trend and is heading down toward support near $116 and $120. This should result in a firm bounce, but investors should wait before rushing into the market. The stock should begin trending higher again once it has corrected from the triple-digit rally it posted from mid-2022 to early 2023.