DICK'S Sporting Goods: The Under-the-Radar Buy-and-Hold Winner

Key Points

• DICK's Sporting Goods has cemented its place as the leader in sporting goods; it is expected to continue growing.
• Operational quality is part of the package and includes healthy cash flow, a solid balance sheet, and capital returns. 
• The analysts' trends support the market and are leading to a new all-time high. 

DICK'S Sporting Goods NYSE: DKS emerged as a buy-and-hold quality stock before 2020, but its results since confirm the fact. This company is firing on all cylinders after establishing itself as the leader in its category and can compete against big-box stores like Walmart NYSE: WMT, Target NYSE: TGT, and Costco NASDAQ: COST. Its selection of high-quality, brand-name sporting goods spans the recreational universe and is the source for athletes. The brand quality is compounded by an operational quality that sustains financial health despite business investment and capital returns. The net result is a best-in-breed retail stock with a positive growth trajectory, healthy cash flow, and robust return for buy-and-hold investors.

DICK'S Sporting Goods Rises After Beat-and-Raise Quarter

DICK'S Sporting Goods had another solid quarter despite the macroeconomic headwinds and the negative impact of a calendar shift. The company reported $3.06 billion in revenue, which was flat compared to the prior year but 100 basis points (bps) better than expected. The strength was driven by an acceleration in comp store growth to 4.2%, more than double the prior year, offset by five fewer stores. The company says it had a strong back-to-school season and that new concepts resonate with consumers. Digital remains a critical element. 

The margin news is also good. The adjusted results showed some contraction, but GAAP expanded to produce growth. Still, the $2.75 adjusted EPS is 220 bps ahead of MarketBeat’s reported consensus and underpins a robust financial condition. The critical takeaway is that the company sustains solid margins in a challenging environment and produces ample cash flow. 

DICK'S is cash-flow positive and able to invest in growth while maintaining the balance sheet health and returning capital to investors. The dividend is worth $4.40 to investors in 2024, about 2%, with shares near record highs, and the buybacks reduced the count by 4.5% YTD at the end of Q3. 

The guidance aligns with the outlook for capital returns. DICK'S raised its full-year targets because of the Q3 strength and points to a healthy Q4 holiday season. The company may outpace its guidance because of the trends, as it has all year, and persist with strength next year. The combined impact of easing monetary headwinds and a consumer-friendly president is expected to sustain consumer spending trends, if not accelerate them. The analysts' forecasts for 2025 are likely low in this scenario, so the revision upgrade cycle will likely continue. 

The Analysts' Trends Lead DICK'S Sporting Goods Stock to Higher Prices

The analysts' trends in 2024 are bullish and unlikely to change, given the Q3 results and guidance. The trends include numerous upgrades and price target increases, with the sentiment trending higher to Moderate Buy from Hold and the price target up by 70% in 12 months. The consensus price target assumes fair value near record highs, but the revision trends put the stock in the high-end range near $280, a 20% gain from the critical resistance point and well above the current all-time high.  

The critical resistance point is near $235 and may be reached soon. If not, this stock could remain range-bound at current levels until there is evidence of strength in 2025. That could come as early as the Q4 earnings release, due in February. The worst-case scenario is that this stock moves to the low end of its trading range before continuing the uptrend, a movement that would present a better entry point. Regardless, trading at 15x and expected to grow another mid-single-digit amount in 2025, it is a cheap stock to own and pays a healthy, reliable capital return worthy of inclusion in a dividend-growth portfolio.