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Bear of the Day: Dick's Sporting Goods (DKS)

Eric Dutram

Thanks to concerns about continued gains in the housing market, high oil prices, and still sluggish job growth, some are starting to grow worried about the retail sector. Add in high levels of competition, and a number of firms could be facing rough trading to close out the year.

One such firm that may be in this camp is Dick’s Sporting Goods (DKS). Dick’s is a mid-cap retailer specializing in sporting goods, along with selling golf equipment, and hunting and fishing gear. The Pennsylvania-based firm has expanded across the nation and is now in 44 states operating over 500 locations.

Consumers have embraced the company over the long term, and DKS has also seen solid returns in the YTD time frame. However, the company is certainly prone to periods of high volatility, and with some of the broad trends in the marketplace, this could definitely take place in the tail end of 2013.

DKS in Focus

 In addition to the broad trends in the market, investors should note that the earnings estimate revision picture isn’t that great. Analysts have been scaling back their expectations for DKS in both the short and long term, pushing down the EPS consensus for the firm.

In fact, 19 estimates have gone lower in the past 60 days for DKS, while only four have gone up in the past month, when looking at the full year time frame. This has pushed the consensus estimate for the current year earnings of DKS down from $2.85/share 90 days ago, to just $2.64 today.

Thanks to this, growth for DKS is expected to be just 4.3% for the current year, a far cry from the industry average of 9.5%. Meanwhile, for longer term growth (five years), the figure also comes in below the industry average, while it is below what the company saw in the trailing five years, suggesting growth at DKS is slowing down.

These factors, along with a spotty history in earnings season, have pushed DKS down to a Zacks Rank #5 (Strong Sell). This suggests that trouble could be ahead for the company, and given how volatile it is at earnings season, this might be a stock to avoid in the near term.

Other Options

If investors are dead-set on staying in the retail sector, you should note that the industry currently has a poor Zacks Industry Rank, easily in the bottom 25%. Still, there are some buy ranked stocks worth considering in this space, especially when compared to DKS.

For example, Cabella’s (CAB), Five Below (FIVE), and Ulta Salon Cosmetics & Fragrance (ULTA) all currently have Zacks Ranks of 2 (Buy). Plus, they have all seen their ranks surge from 3 to 2 in the past week, suggesting now might be the time to look to these names over DKS, at least in the short term.

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