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Stock Strategist

We See Some Positives for Sporting Goods

Competitors' store closures should help Dick's, which we think is undervalued.

Mentioned:

Despite unseasonably warm weather and a shorter holiday shopping season, we think investors have overreacted to recent retail news, and we believe sporting goods is still one of the healthier consumer categories. Although headwinds exist and there appear to be more discounts and promotions on offer at present, we think sales are picking up in the final weeks of the holiday selling season, and we believe consumer desire for the top brands is still strong.

We believe  Dick's Sporting Goods (DKS) is undervalued. Along with its store opening potential for the next several years, we see the distress of some competitors as a long-term positive. Recent downgrades on Sports Authority's bonds suggest that the formerly equal competitor to Dick's could now shrink. While short-term liquidations can affect local same-store sales, the market exit by a national competitor should see Dick's take share. We also see the potential consolidation of outdoor retailers Cabela's and Bass Pro as a plus for Dick's and note that another outdoor chain, Gander Mountain, has appeared weak for years and could eventually close stores as well. Gander was a public company in the mid-2000s, but like Sports Authority went private before the 2008 recession.

Paul Swinand does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.