Citi believes that the tough outlook for 2023 could put pressure on Dick’s Sporting Goods stock in the near term. Analyst Paul Lehuez downgraded the sports retailer’s stock from Buy to Neutral, citing concerns about near-term pressure on gross margins as excess inventory persists and demand potentially slows. “With DKS in complex multi-year comparisons in 2023 (especially in H2), it’s hard to see how they can sustainably increase sales/earnings per share, especially if demand for key apparel/footwear categories (~55% of sales) declines.” he wrote on Tuesday in a note to clients. “Over the past 12 months, stocks have been the best in our universe…and overfilled, making the risk/reward ratio more balanced at current levels,” Lehuez added. DKS 1D Mountain Dick’s Sporting Goods shares fall on Citi downgrade Dick’s Sporting Goods shares fell 2% before the downgrade was announced. The stock is up nearly 8% this year. While the company’s sales have surged $3.5 billion since 2019, Lehuez sees limited room for further expansion given the slowdown in apparel and footwear sales growth. “While we expect earnings per share ($2.98 vs minus $2.90) to be higher on stronger sales, we expect weaker gross margins compared to consensus,” he wrote, adding that the 2023 outlook the year should show “another sales/margin return”. Lehues also cut the bank’s target price to $140 from $143 a share, reflecting 8% upside from Monday’s close. “While the stock may be cheap on the open floor, trading at a P/E ratio of 11.5x and an EV/EBITDA of ~6x, we believe there could be a negative reaction to the stock below the consensus, especially given the difficulty of comparing sales in 2H23. he wrote. – CNBC’s Michael Bloom provided the coverage.
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