Despite Dick’s Sporting Goods’ (DKS) decline, Goldman says, it’s still not cheap enough to buy. Goldman wants to like the stock, but can’t in today’s economy:
We are reducing our earnings estimates for DKS to reflect continuation of tough current conditions through 2008, with modest flow through in sales pressure through early 2009, and in operating margin through 2010.
DKS remains a strong retail growth story, with three key drivers:
- Some of the best footage opportunity of a proven major concept in all of retailing, with few stores in three of the nation’s largest states: CA, FL, TX.
- Strong senior management team, led by Ed Stack, one of the most focused CEOs we have encountered, who is incentivized through 20%-plus ownership.
- “Best in class” visual merchandising, assortments, and service, delivered in consistently crisp, well-tailored stores.
However, these are the risks that Goldman believes continue to dog the stock:
- soft consumer spending
- achievability of footage growth goals
- reception to cutbacks in footage
- potential inventory overages at key vendors
- aggravated competition
Goldman maintains NEUTRAL on Dick’s Sporting Goods (DKS), target cut from $26 to $22.
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