Option Trade 
Dicks Sporting Goods Inc (NYSE:DKS) Calls 
Monday, 15th August, 2016

** OPTION TRADE: Buy the DKS DEC 16 2016 55.000 call at approximately $3.70. Place a pre-determined sell at $7.40.

Note: No protective stop losses added -- but if you wish to do so make it $1.50.

by Ian Harvey

August 15, 2016

Dicks Sporting Goods Inc (NYSE: DKS), a sporting goods retailer offering an assortment of brand name sporting goods equipment, apparel and footwear in a specialty store environment, will report its second-quarter numbers before the market opens on August 16.

Analysts are looking for Dick's to post earnings of 68 cents per share with revenues of $1.88 billion.

For the 2015 second quarter, the company reported earnings and revenue of 77 cents per share and $1.82 billion.

Dick's Sporting is seeing favorable earnings estimate revision activity as of late, which is generally a precursor to an earnings beat. After all, analysts raising estimates right before earnings-with the most up-to-date information possible-is a pretty good indicator of some favorable trends underneath the surface for DKS in this report.

Investment analysts at SunTrust Banks upped their Q4 2017 earnings estimates for Dick’s Sporting Goods in a research note issued to investors last Wednesday. SunTrust Banks analyst D. Magee now forecasts that the brokerage will earn $1.28 per share for the quarter, up from their previous forecast of $1.24.

Dick’s has been enjoying a strong run over the last few months, fueled in part by an impressive earnings report back in May. If the company is able to follow that up with another set of solid numbers for its most recent quarter, the stock should continue to build on its recent gains. If the company is able to report earnings in-line with the consensus the stock will trend higher, while an earnings beat will likely result in a big jump in shares.

The athleisure fashion trend has helped drive sales for sporting goods companies, and should continue to benefit Dick’s moving forward. The stock has a reasonable P/E of 19.3, and while earnings are forecast to fall by 1.4% during the current year, they are forecast to rise 22.6% next year, which would continue to keep the stock moving higher.

The stock is up an impressive 54.5% on the year.

Dick’s Sporting Goods has a 50-day moving average price of $48.85 and a 200-day moving average price of $44.52. Dick’s Sporting Goods has a 12-month low of $33.42 and a 12-month high of $55.56. The firm has a market capitalization of $6.24 billion and a PE ratio of 19.48.

Why Dicks Sporting Goods Inc?

Dicks Sporting Goods Inc has a favorable risk to reward profile, at least according to Michael Lasser of UBS.

In a report published Friday, Lasser said Dicks' upcoming second quarter earnings print (August 16) could "set the stage for a string of accelerating gains." The analyst believes that at this point, the company's second quarter print is actually an "after-thought" compared to the "compelling" investment case.

Lasser is estimating Dicks' second quarter comps will decline by just 1.5 percent, which is at the better end of management's guidance for a 1 to 4 percent decline. The second quarter's performance wasn't as severely impacted by The Sports Authority's liquidations as originally assumed, which presents the case for upside.

Looking forward, Dicks is in good position to benefit from several quarters of "meaningful" share gains which will result in "outsized" sales and earnings per share growth. In addition, the company's forward looking guidance and commentary "could surprise how quickly its benefiting from industry consolidation."

Finally, Lasser suggested that the 31 stores Dicks acquired from TSA will prove to be "far greater than average" in terms of productivity and this isn't factored into the analyst's model and could add $0.15 to $0.20 in incremental earnings per share next year. This could generate upside compared to the consensus estimate of $3.47.

Bottom line, Dicks' is demonstrating "an improving competitive positioning" and the "risk/reward paradigm" is in the company's favor at current levels.

Shares remain Buy rated with a price target raised to $61 from a previous $57.

Credit Suisse analysts said that there's "a lot to be excited about" when the company reports 2016 second quarter results. The stock offers several near-term upsides as a result of Sports Authority closing, as well as possibility better results in the second half of this year.

The firm projects Dick's to post earnings of 70 cents per share, which is above consensus estimates. For the third quarter, the firm expects earnings to be flat or down 2%.

Separately, TheStreet Ratings has this to say about the recommendation:

We rate Dicks Sporting Goods Inc as a Buy with a ratings score of B. This is driven by some important positives, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its revenue growth, reasonable valuation levels, and increase in stock price during the past year and largely solid financial position with reasonable debt levels by most measures. We feel its strengths outweigh the fact that the company has had subpar growth in net income.

Analyst Input

Stock analysts at Susquehanna assumed coverage on shares of Dick’s Sporting Goods Inc. (NYSE:DKS) in a report released on Friday. The firm set a “positive” rating and a $65.00 price target on the sporting goods retailer’s stock.

Susquehanna’s price objective suggests a potential upside of 18.76% from the stock’s current price.

Also, several other equities research analysts have recently commented on the company.

• Goldman Sachs Group Inc. raised Dick’s Sporting Goods from a “neutral” rating to a “buy” rating and set a $53.00 price objective on the stock in a report on Thursday, May 26th.

• Deutsche Bank AG reaffirmed a “buy” rating and issued a $52.00 price objective on shares of Dick’s Sporting Goods in a report on Thursday, April 14th.

• Finally, Forward View reaffirmed a “strong-buy” rating on shares of Dick’s Sporting Goods in a report on Friday, April 22nd.

One investment analyst has rated the stock with a sell rating, nine have issued a hold rating, nineteen have issued a buy rating and one has issued a strong buy rating to the company. The stock has an average rating of “Buy” and a consensus price target of $52.25.

Harvey’s Options Volatility Indicator


Therefore, based on the facts above, and Harvey’s Options Volatility Indicator, the following option trade is recommended…..

** OPTION TRADE: Buy the DKS DEC 16 2016 55.000 call at approximately $3.70. Place a pre-determined sell at $7.40.

Note: No protective stop losses added -- but if you wish to do so make it $1.50.

”Success is simple. Do what's right, the right way, at the right time.”

Option Tip for your Success!
Options traders are not successful because they win.
Options traders win because they are successful.

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