Is Academy Sports And Outdoors A Buy For 2023?

Key Points

• Dick's Sporting Goods foreshadows strong results for Academy Sports and Outdoors. 
• The analysts have the bar set low so outperformance is expected. 
• The yield is low now but expected to grow by double-digits for years to come. 

If results from Dick’s Sporting Goods NYSE: DKS can be used as a guide, Academy Sports and Outdoors NASDAQ: ASO is a buy for 2023. Both stocks are trading at a value to the broad market, Academy Sports and Outdoors at a discount to Dick’s, and Dick’s results were more than impressive. Add in the dividends and outlook for distribution growth, and both become attractive, if for slightly different reasons. In the case of Dick’s, it is the history of growth and higher-than-average 2.75% distribution yield. 

Dick’s yield is relatively safe and backed up by share repurchases. In the case of Academy Sports and Outdoors, the yield is much lower, with little history to speak of. However, the 5% payout ratio and 1st-ever distribution increase suggest the company is on a path of dividend increases. Based on the metrics, Academy Sports and Outdoors' dividend could continue rising at the 20% pace it has embarked on for many years to come. 

The Bar Is Low For Academy Sports and Outdoors 

The analysts expect revenue to come in flat for Academy this quarter, but there is a significant risk of outperformance. Dick’s Sporting Goods grew at an unexpected 7.3%, driven by a 5.3% comp that could be easily repeated at Academy. Academy has already guided for profit growth this quarter, contrary to Dick’s, but even this metric could impress the market.

Dick’s was able to drive a better-than-expected margin, resulting in bottom-line strength and favorable guidance. The guidance from Dick’s is expecting EPS in a range that was more than $0.50 above the consensus target, even after adjusting for a $0.20 tailwind due to an extra 53rd week. 

The analysts were impressed with Dick’s Sporting Goods results and are driving that stock higher. At least 17 have come out since the Q4 report to up their price targets. The Marketbeat.com consensus sentiment is up compared to last year, with a price target that is trending higher. The same is true for Academy leading into the results; the analysts rate the stock a Moderate Buy with a price target about 15% above the current action.

The sentiment toward Academy has slipped slightly in the past year, but this price target is also increasing. This trend should continue assuming the Q4 results come in as expected and exceed the consensus figures. 

Market Dynamics Favor Higher Prices 

Market dynamics favor higher prices for Academy Sports and Outdoors because it is a tightly held issue with high short interest. The insiders have been selling in recent quarters but in tiny amounts that leave their holdings near 3.5% compared to the 95% institutional ownership. Institutional activity has been mixed over the past year but bullish on balance and net bullish more quarters than most. The short interest is running near 15%, and the market is set up for a squeeze, given strong enough results. Dick’s was also running a high short interest ahead of its report, and price action popped about 6% following the report. 

Shares of Academy Sports and Outdoors are in an uptrend that recently corrected back to the short-term moving average. Price action may be mixed over the next few days, but the trend will be confirmed or rejected by the end of the week. The trend should continue if the results are strong, driving this stock to a new high. If not, Academy Sports and Outdoors could be range bound until later in the year.