Don’t Take Dick’s Sporting Goods Seriously? Big Mistake

Key Points

• Dick's Sporting Goods is the established leader in sporting goods, growing, driving healthy cash flow, and returning capital to investors. 
• The Foot Locker acquisition is expected to unlock numerous synergies and accelerate growth. 
• The stock is a deep value in late May, trading at the low end of the analyst's range with a potential 30% upside this year. 

Dick’s Sporting Goods NYSE: DKS is a quality investment that retail investors shouldn’t pass up. The company may not be a high-profile trade like NVIDIA NASDAQ: NVDA, but it has the qualities that drive long-term value. Those include brand strength, an industry-leading position, blue-chip quality retail business, growth, cash flow, a healthy balance sheet, and capital returns.

Capital returns, including dividends and share repurchases, are of particular interest because they are substantial and growing in line with the business. 

The Q1 dividend is 6% higher than the previous year, yielding 2.8% with shares priced near $175, and it represents a safe and reliable payment. The company pays out less than 40% of its earnings in distributions and can sustain its double-digit distribution CAGR because of its growth and share buybacks.

The buybacks were substantial in Q1, increasing by more than 150% from the previous year, resulting in a 2.24% reduction in the share count. This trend is likely to remain robust in 2025 due to the company's strong cash flow and balance sheet health. 

Dick’s cash flow statement and balance sheet reflect the aggressive share repurchases, as well as business investments, capital expenditures (CAPEX), and new property acquisitions. However, the cash balance remains solid at $1 billion, with spending expected to slow and the company’s seasonally best quarters still ahead.

The critical takeaways include the increase in total assets, the zero balance on the revolving credit facility, flat long-term debt, and a 13.5% increase in shareholder equity.

 Equity is expected to rise in the long term and is likely to accelerate in 2025 and 2026 as the Foot Locker NYSE: FL acquisition is integrated into the network. 

Dick’s Sporting Goods Whiffs in Q1: Reaffirms Guidance 

Dick’s Sporting Goods Q1 results missed the analysts’ consensus estimates reported by MarketBeat. However, the weakness is offset by a 5.3% YOY growth, steady cash flow, and reaffirmed guidance. The company forecasts a 1% to 3% increase in comparable-store sales, with revenue expected to range from $13.6 billion to $13.9 billion.

The only bad news is that the guidance range brackets the consensus, but with the consensus above the mid-point. Investors should focus on the growth and upcoming acquisition of Foot Locker. 

The Foot Locker deal is yet to be affirmed by its shareholders, but a negative outcome is unlikely. The deal values Foot Locker at a premium to its recent share price range, providing value for both parties.

The move will unlock numerous brand and business synergies, including expanded markets and reduced input costs, while invigorating growth and cementing Dick’s Sporting Goods as the leader in the sporting goods industry. 

Dick’s long-term strategy includes expanding its House of Sport concept and bringing some of the features inot the smaller store footprint. Dick’s Fieldhouse incorporates many of the features found at the House of Sport including in-store experiences and enhanced customer service.

Features such as indoor tracks, rock climbing walls, multi-sport cages, and driving ranges enhance the experience, enabling customers to test equipment and hone their skills.

Analysts and Institutions Have a Significant Stake in Dick’s for a Reason

Analysts' activity in 2025 can be described as tepid, with recent revisions including a downgrade and some reductions in price targets. However, the group rates the stock as a Hold, the low-end of their target range provides a floor for the price action, and the consensus forecasts a 30% upside.

Coincidentally, the institutions, fund managers, and insiders own more than 90% of the stock, and they are buying on balance for a reason; Dick’s is a long-term value builder. Their H1 2025 activity includes two small sales by insiders in January, offset by record-high levels of institutional buying activity.

The post-release price action is good. The stock price increased by 5% in pre-market trading and shows support at a critical EMA. The chart history suggests this signal will result in an uptrending stock price with the potential to reach new all-time highs within the next four to six quarters.