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Dick's Sporting Goods Sets Stage for Profitability

Our investment thesis for the no-moat retailer remains intact after its third-quarter update, as the company navigates several merchandise assortment changes.

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Dick's Sporting Goods Inc
(DKS)

Our investment thesis on no-moat

Barring a near-term recession, we expect comps to accelerate to the low single digits as Dick's replaces its hunt/firearm assortment with outerwear, baseball, and private label products. We also expect online sales (which grew 16% in the quarter) to remain in the low to midteens as Dick's expands 2-day shipping across the country. Our $40 fair value estimate remains unchanged as we remain confident in our outlook calling for average annual sales growth of 2.2% from fiscal 2018 to 2027 and average operating margins of 5.7% over the same period. While we see shares as modestly undervalued, we would not be surprised to see market optimism prop up Dick's stock as comps accelerate.

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About the Author

RJ Hottovy

Sector Strategist
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R.J. Hottovy, CFA, is a consumer strategist for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc. He is responsible for consumer discretionary and staples research. He has covered the consumer sector as an analyst and director of global consumer equity research for Morningstar since joining the company in 2008, and specializes in a broad range of consumer categories including restaurants, footwear and apparel retailers, consumer electronics retailers, fitness clubs, home improvement and furnishing retailers, and consumer product manufacturers.

Before joining Morningstar, Hottovy was a director and senior stock analyst for Next Generation Equity and an analyst for William Blair & Co., specializing in a wide range of retail and consumer product companies. He also spent two years at Deutsche Bank, covering waste management, water utilities, and equipment rental stocks.

Hottovy holds a bachelor’s degree in finance and a second degree in computer applications from the University of Notre Dame, where he graduated magna cum laude. He also holds the Chartered Financial Analyst® designation and is a member of the CFA Institute and the CFA Society of Chicago.

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