On Monday, Guggenheim maintained its Buy rating on Academy Sports & Outdoors Inc. (NASDAQ:ASO) and increased the price target to $75 from the previous $68. The firm's analysis indicated that shares of Academy Sports have experienced a significant rally, approximately 52%, over the past three months. This rise is attributed to expectations of an improving consumer spending environment, a trend that has been observed among other discretionary retailers and has outperformed the S&P 500's approximate 15% gain during the same period.
Despite the robust stock performance, Guggenheim noted that near-term growth rates for Academy Sports are higher, while the valuation remains lower compared to its peers. This discrepancy is partly due to the company's aggressive expansion strategy, which includes an 8-9% increase in unit expansion as it enters adjacent and new markets. However, concerns persist regarding the potential reversal of gains made during the COVID-19 pandemic, as evidenced by a year-to-date comparable sales decline of 7.5% and a 300 basis point erosion in EBITDA margin.
The firm believes that the current concerns are already reflected in the modest EBITDA and P/E multiples of Academy Sports. As a result, Guggenheim has raised its price target for the stock, expressing confidence in the company's valuation. The analyst's commentary suggested that while fourth-quarter operating results and initial 2024 guidance might not serve as a catalyst for the stock, potential stabilization of the profit and loss statement in the first half of the year could be a positive driver in the coming months.
In summary, Guggenheim's updated price target of $75 for Academy Sports & Outdoors reflects a positive outlook on the company's growth prospects and market expansion, despite the challenges faced in the current fiscal year. The firm remains bullish on the stock, anticipating further stabilization and potential upside in the near future.
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