DICK'S Sporting Goods | (NYSE: DKS)
QVI Research Report | Updated Coverage | July 2023
Summary
As the primary sporting goods retailer in its local markets, DICK’S is often the only game in town.
QVI added the stock to the Expanded Portfolio in 2019 for its compelling value proposition, high-quality business model, and discounted stock price.
Following a near five-bagger run-up since inception, beating the S&P by almost 27,500 basis points, the stock seems to have tempered relative to cash flows and sentiment-related downside risks.
However, QVI reiterates its view on the shares in this updated research report.
When referencing this report, premium (paying) subscribers can access their Quality Value Investing (QVI) Glossary of Investing Terms and Metric Targets. Unless noted, all data presented is sourced from Seeking Alpha Premium as of the market close on July 6, 2023, and intended for illustration only. If reading this in your email, consider viewing in the Substack App for a more inclusive experience.
DICK’S Sporting Goods Value Proposition
QVI Research Report’s value proposition section provides a brief synopsis of the company’s business model, major-exchange listing, stock symbol, market capitalization, and dividend-paying status. In addition, it defines the competitive advantages of a company’s products or services to its customers compared to the industry, including the stock’s historical performance vs. the sector and market.
DICK’S Sporting Goods, Inc. DKS 0.00%↑ is a dividend-paying mid-cap stock in the consumer discretionary sector’s specialty retail industry. DKS was added to the QVI Expanded Portfolio on January 22, 2019, at a dividend- and split-adjusted $29.18 a share.
DICK'S Sporting Goods, Inc. and its subsidiaries operate as a sporting goods retailer primarily in the United States.
The company provides hardlines, including sporting goods, fitness equipment, golf equipment, hunting and fishing gear products, apparel, and footwear and accessories. It also owns and operates Sporting Goods, Golf Galaxy, Field & Stream, Public Lands, Going Going Gone!, and other specialty concept stores; and DICK'S House of Sports and Golf Galaxy Performance Center, as well as GameChanger, a youth sports mobile application for video streaming, scorekeeping, scheduling, and communications. The company sells its product through e-commerce websites and mobile applications. The company was formerly known as Dick's Clothing and Sporting Goods, Inc. and changed its name to DICK'S Sporting Goods, Inc. in April 1999.
DICK'S Sporting Goods, Inc. was incorporated in 1948 and is headquartered in Coraopolis, Pennsylvania, USA.
QVI’s value proposition elevator pitch for DICK’S Sporting Goods:
Primary sporting goods retailer in its local markets is often the only game in town.
Performance vs. Sector and Market
The chart below illustrates DKS’s performance against the Consumer Discretionary Select Sector SPDR® Fund ETF (NYSE: XLY) and the SPDR® S&P 500 ETF Trust (NYSE: SPY) since QVI’s initial coverage of DICK’S Sporting Goods in January 2019.
For example, DKS dramatically outperformed its sector and the broader market in total returns during the coverage timeframe, including the pandemic and inflationary bear market.
Due Diligence Resources
For a more in-depth analysis of the all-important value proposition, visit DICK’S Sporting Goods investor relations webpage and its most recent Form 10-K Annual Report submitted to the US Securities and Exchange Commission or SEC.
QVI’s value proposition rating for DICK’S Sporting Goods: Bullish.
DKS Total Returns vs. XLY and SPY
DICK'S Sporting Goods Inc (DKS) Total Return: +352.00%
Consumer Disc Sel Sect SPDR ETF (XLY) TR: +70.84%
SPDR S&P 500 ETF Trust (SPY) Total Return: +81.65%
Since January 22, 2019 (as of July 6, 2023)DKS Shareholder Yields
QVI Research Report’s shareholder yields section uncovers the equity bond rate of the company’s common shares. It aims to quantify the yields on earnings, free cash flow, and dividends to measure how the targeted stock compares to the prevailing yield on the 10-Year Treasury benchmark note.
Earnings and Free Cash Flow Yields
DKS’s earnings yield traded above the QVI targeted floor at 9.07%, as demonstrated in the below chart. However, at 4.59%, DKS’s free cash flow yield was under the threshold.
As inverse valuation multiples, the weighted earnings and free cash flow yields suggest that DKS trades at a reasonable price. QVI will further explore valuation multiples later in this report.
Dividend Yield
DICK’S Sporting Goods offers a forward dividend yield of 2.31%, supported by an ultra-conservative 19.53% payout ratio, thus indicating a dividend rate with plenty of room for additional annual increases.
DKS yielded 13.71% from an annual payout of $4.00 on a split- and dividend-adjusted cost basis of $29.18 per share on January 22, 2019, the date of QVI’s initial stock coverage. Thus, our yield-on-cost basis was +1,140 basis points [bps] above the forward yield.
Average of Shareholder Yields
Quality Value Investing takes the average of the three shareholder yields to measure how the stock compares to the prevailing yield of 4.03% on the 10-Year Treasury benchmark note. For example, the average shareholder yield for DKS was 5.32% or +129 bps above the 10-Year and 9.12% or +509 bps above the Treasury yield when using QVI’s January 2019 yield-on-cost basis.
QVI’s shareholder yields rating for DKS: Bullish.
DKS Shareholder Yields
DICK'S Sporting Goods Inc (DKS) Price: $128.94
DICK'S Sporting Goods Inc (DKS) Earnings Yield: 9.07%
DICK'S Sporting Goods Inc (DKS) Free Cash Flow Yield: 4.59%
DICK'S Sporting Goods Inc (DKS) Dividend Yield: 2.31%
One-Year Trailing (as of July 6, 2023)DICK’S Sporting Goods Fundamentals
QVI Research Report’s fundamentals section measures the performance strength of the company’s senior management by analyzing revenue growth, net profit margin, and returns on equity and invested capital.
Revenue Growth and Net Profit Margin
Per the chart below, DICK’S Sporting Goods had three-year annualized low-double-digit revenue growth of 12.22%, outperforming the 9.11% median growth of the consumer discretionary sector.
Farther down the income statement, DICK’S Sporting Goods had a trailing three-year high-single-digit net profit margin of 9.39%, doubling the sector’s median net margin of 4.20%.
Returns on Equity and Invested Capital
DICK’S Sporting Goods’ management produced a trailing three-year return on equity or ROE of 49.63%, surpassing the targeted threshold and the sector’s median ROE of 9.90%.
Stock buyback programs often elevate ROE. For example, in December 2021, DICK’S Sporting Goods’ board of directors announced a new 7.7 million share, $829 million share repurchase program. At an estimated price of $107 a share, the company was lined-up to buy the stock at a 17% discount to today’s closing price. Now that’s the value investing approach we seek at QVI when assessing stock repurchases.
At 31.72%, DICK’S Sporting Goods’ three-year return on invested capital, or ROIC, was more than double the QVI threshold. It trounced the sector’s median ROIC of 6.10%, indicating that its senior executives are outstanding capital allocators.
In addition, DICK’S Sporting Goods’ ROIC covered its weighted average cost of capital, or WACC, of 6.81% four times over. (Source of WACC: GuruFocus).
With solid revenue growth for a retailer, sector-beating net profit margin, and superior returns on equity and capital, DICK’S Sporting Goods’ management continues its 2nd level performance in Pittsburg.
QVI’s fundamentals rating for DICK’S Sporting Goods: Bullish.
DKS Returns on Management
DICK'S Sporting Goods Inc (DKS) Revenue (3y Growth): 12.22%
DICK'S Sporting Goods Inc (DKS) Profit Margin (3y Median): 9.39%
DICK'S Sporting Goods Inc (DKS) ROE (3y Median): 49.63%
DICK'S Sporting Goods Inc (DKS) ROIC (3y Median): 31.72%
Three-Year Trailing (as of July 6, 2023)DKS Valuation, Risks, and Investment Thesis
Next, QVI dives into the valuation multiples, downside risks, and overall investment thesis of DICK’S Sporting Goods, Inc. (DKS), including potential catalysts. So let’s dig further after reading the required disclosures and background information.
Disclosure: I/we have no beneficial position through direct ownership of any stock mentioned in this report. I wrote this report myself, and it expresses my own opinions. I am not receiving compensation for it other than from Substack paid subscriptions. I have no business relationship with any company whose stock is mentioned in this article.
Additional Disclosure: Quality Value Investing by David J. Waldron’s primary ticker research reports are for informational purposes only. The accuracy of the data cannot be guaranteed. Narrative and analytics are impersonal, i.e., not tailored to individual needs nor intended for portfolio construction beyond his family portfolio, which is presented solely for educational purposes. David is an individual investor and author, not an investment adviser. Readers should always engage in their own research or due diligence and consider (as appropriate) consulting a fee-only certified financial planner, licensed discount broker/dealer, flat fee registered investment adviser, certified public accountant, or specialized attorney before making any investment, income tax, or estate planning decisions.
About the Writer
David J. Waldron is contributing editor of Quality Value Investing and author of the international-selling book, Build Wealth with Common Stocks: Market-Beating Strategies for the Individual Investor. David’s mission is to inspire the achievement of his readers’ financial goals and dreams. He received a Bachelor of Science in business studies as a Garden State Scholar at Stockton University and completed The Practice of Management Program at Brown University.
Preview David’s Book
Readers can preview Build Wealth with Common Stocks below, including links to online booksellers worldwide.
Bonus: Founding Members of QVI on Substack are eligible to receive an author-personalized complimentary copy of the case laminate hardcover edition of the book.