Dick's Downgraded Following 42% Run

Dicks Sporting Goods Inc (NYSE: DKS) reported robust Q2:16 results, reflecting that share gains from The Sports Authority have begun to accrue in Q2 itself and were likely to continue to drive results in the coming quarters.

Goldman Sachs’ Stephen Tanal downgraded the rating on the company from Buy to Neutral, while raising the price target from $56 to $61.

Limited Upside

Removing the stock from the Conviction List, Tanal mentioned that Dick's Sporting Goods’ shares were up 35 percent since mid-May, as compared to the 6 percent rise in the S&P 500.

However, the analyst also expects upside to the company’s guidance in 2H, with earnings acceleration after that, while the upside to the stock is likely to be more limited going forward.

Related Link: Dick's Sporting Goods Hits New 52-Week High, But Could Be Too High Of A Price For Some

Expectations

Following the closure of its biggest competitor, The Sports Authority (TSA), Dick's Sporting Goods has been benefiting through market share gains, given that 37 percent of the latter’s chain had more than one TSA store within 10 miles and 63 percent TSA stores had more than one Dick's Sporting Goods store within 10 miles.

“We continue to expect ~$310+ million in annual organic sales capture,” Tanal stated, while adding, “Earnings growth looks poised to accelerate in 4Q16 and into 2017, driven by TSA share gains, an easy 4Q compare, and the in-sourcing of the Dick’s eCommerce business that should rebase margins higher.”

The EPS estimates for 2016, 2017 and 2018 have been raised to reflect a better sales and gross margin outlook.

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