By Sam Boughedda
Analysts at Morgan Stanley and Citi are split in their outlook for Dick’s Sporting Goods (NYSE:DKS) ahead of its next earnings release, with Citi downgrading the stock in a note to clients on Tuesday.
Citi analysts cut the firm's rating on DKS to Neutral from Buy, lowering the firm's price target on the stock to $140 from $143.
They told investors that while their firm expects an "EPS beat ($2.98 vs cons $2.90) driven by stronger sales," they also anticipate weaker gross margin vs. consensus.
"Overall, we view DKS as a structurally better business vs. pre-pandemic. However, GP$ are expected to be down in 2022, showing sales growth has come at a cost," the Citi analysts wrote. "We expect near-term GM pressure to continue (driven by excess inventory in the marketplace) and for F23 guidance to reflect another year of sales/margin give back."
They added that with DKS up against difficult multi-year comparisons in 2023, it's "tough to see how they can sustainably grow sales/EPS, particularly if demand slows in key categories of apparel/footwear."
On the other hand, Morgan Stanley analysts maintained an Overweight rating and $165 price target on DKS in a note Monday, telling investors their firm expects a Q4 beat on comps and an in-line EPS.
"We like DKS fundamentally and believe it could be a rare case in Retail of a structurally transformed sales/margin profile," said analysts. "We think the market is expecting another Q4 top-line beat with in-line '23 guidance of flattish comps and ~$12 in EPS. This guidance range implies DKS's sales/EBIT margin will land ~45%/~660 bps above '19 levels."
Analysts believe that if DKS can sustain this level of profitability, the stock at ~0.6x vs. the S&P 500 "seems structurally mispriced."
"As explored in our recent deep dive, we believe DKS can hold and compound its higher sales/margin base driven by pre-COVID structural changes to its operating model, which underpins our OW rating," they added.