Dick’s Sporting Goods Is At The Bottom
After correcting more than 30% over the past several quarters it looks like Dick’s Sporting Goods (NYSE: DKS) is at the bottom. The sell-off is more to do with expectations and systemwide hurdles than actual results and is aided by a high amount of short interest. At 22%, Dick’s Sporting Goods short-interest is not the highest we’ve ever seen but is substantially high and ample fuel for a short-squeeze. Add in fact the Q4 results were much better than expected and aggressive dividend increases are still in play we see this stock moving higher over the course of the next quarter and then possibly setting new highs later in the year.
The institutional activity in Dick’s Sporting Goods is worth noting as it poses a risk to investors. The institutions own more than 92% of the stock and they have been heavy sellers for the last two quarters. The net of institutional activity the last two quarters is worth more than 6.2% of the market cap with shares trading near $ 105 and a very big reason why prices are at their current lows. If this activity keeps up the stock could easily move lower or remain range-bound despite the strength of the business. However, if the Q4 results alter the institutional perspective on the stock the bottom is definitely in. Trading at only 6.4X its earnings and paying an S&P 500 beating 1.6% in yield we do not see why the institutions would keep selling, we think the stock is attractively priced and pays an incredibly safe dividend.
Dick’s Sporting Goods Beats And Raises, Shares Move Higher
Dick’s Sporting Goods had another record-setting year in 2021 and topped it off with a strong quarter. The company reported $ 3.35 billion in net revenue for the 4th quarter which is good for a gain of 7% on top of last year’s 28.5% increase and beat the consensus by 120 basis points. The gains were driven by a 14% increase in store traffic offset by an 11% decline in eCommerce. eCommerce, notably, is up 57% in the two-year stack and penetration is up 200 basis points.
Moving down, pricing and reduced promotional activity aided the margins and bottom line. The company experienced leverage at both the gross and operating levels to produce high-double-digit increases in both the GAAP and adjusted earnings. On the bottom line, the adjusted $ 3.64 is up from last year’s $ 2.43 and beat the Marketbeat.com consensus by $ 0.11 or 310 basis points.
The company is guiding for flat to slightly negative revenue growth in fiscal 2022 but that is to be expected following the past two years of record-setting results. The COVID tailwinds are long gone and there are headwinds facing the economy so flat is good, especially considering the strength of the balance sheet and outlook for dividend growth. Regardless, the company is guiding earnings in the range of $ 11.70 to $ 13.10 which is also a YOY decline but well above the Marketbeat.com consensus of $ 11.26 so very positive in our eyes.
The Technical Outlook: Dick’s Sporting Goods Moves Up From Support
Shares of Dick’s Sporting Goods corrected more than 30% but have been bumping along the bottom for some time as well. The stock is now moving up from that bottom, at the $ 100 level, and may continue to move higher in the near term. If the market can put enough pressure on the shorts, however, the rally may gain the momentum it needs to move up and above the short-term moving average and approach the $ 120 level. Longer-term, we see this stock moving back up to retest the COVID-induced highs due to earnings power, dividends, and value to shareholders.