Impact of Sporting Goods Stores Industry7
Porter’s 5 Forces8
Big Four Analysis11
Industry Life Cycle13
Dick’s Sporting Goods Analysis
Review of Annual Report16
Company SWOT Analysis18
Trend Ratio Analysis20
Cross Sectional Ratio Analysis22
DuPont Ratio Analysis25
Valuation P/E Multiplier26
Valuation FCF to Equity27
Summary of Analyst Reports28
After analyzing Dick’s Sporting Goods and taking into account both positive and negative aspects associated with the stock, I am giving the stock a Moderate Buy Recommendation, with a target price of $46.50. The recommendation took into account DKS’s recent earnings report, improving financial health, growth estimates, and industry outlook. In this report I will evaluate the current overall economic conditions and how they affect the Sporting Goods Stores industry and the Retail sector in general. The report then focuses on Dick’s Sporting Goods’ key measure of financial health, profitability, and growth compared to historical levels and competitors. A P/E Multiple analysis and a Free Cash Flow to Equity valuation approach was then used to derive an intrinsic value of the stock.
Dick’s Sporting Goods is the largest Sporting Goods Store in the United States, selling sports equipment, exercise and fitness equipment, apparel and footwear along with outdoor sports equipment and accessories. Dick’s was founded in 1948 and operates 455 stores in 42 states primarily in the eastern part of the United States. Dick’s Sporting Goods controls 13.4% of the market share within the industry and has the largest market cap at $4.75 billion. When the most recent fiscal year ended in January of 2011 (FY 2010), Dick’s Sporting Goods generated over $4.8 billion in sales and had Net Income of just over $182 million. Currently Dick’s Sporting Goods has 120.72 million shares outstanding.
Recently GDP grew at an annualized rate of 1.3% and 2% in the second and third quarters of 2011 respectively. Consumer Spending is one of the key drivers and is a large portion of the US economy and with consumer confidence still below healthy levels. Combined with low consumer spending current monetary and fiscal policy have prevented GDP from getting above the aforementioned growth levels for an extended amount of time. Also contributing to low GDP is the traditionally higher unemployment as of late, lack of confidence in the US government, and low home values as a result of the housing crisis. The low growth in GDP will more than likely continue in the near future as the economy will work out of the recent recession and will therefore keep interest and inflation rates. Once the economy starts to strengthen and expand however, GDP growth rates will increase from their current bleak levels. Inflation
Inflation expectations have remained low recently, showing trust in the Red to monitor/control inflation rates when the economy begins to start expanding. With Ben Bernacke and the Fed’s commitment to keep interest rates at their historically low levels, it seems that monetary policy is following a trend of attempting to prevent any policy from causing further struggle to the U.S. economy. In the short term there seems to be no immediate threat/fear of inflation rising in the US. According to an article from Reuters, the Fed wants to keep inflation around its 2% target in order confirm the Federal Reserve’s ability to keep control over inflation levels. Interest Rates
Interest rates set by the US Federal Reserve within its over-arching monetary policy are very...