On Wednesday, Evercore ISI adjusted its price target on shares of Academy Sports & Outdoors Inc. (NASDAQ:ASO) to $60, down from the previous target of $70, while reaffirming an Outperform rating on the company. The firm's analysis followed Academy Sports' first-quarter comparable sales, which decreased by 6% and fell short of expectations. Despite this, initiatives in buybacks, product newness, value, and traffic are anticipated to help comparable sales rebound in the second half of the year.
Academy Sports has confirmed its forecast for a 100 basis point selling, general, and administrative (SG&A) expense deleverage, alongside gross margins ranging between 34.3% and 34.7%. This is in line with the company's well-managed inventory levels, which saw an 11% reduction in units during the first quarter, primarily in distribution centers. Additionally, the estimated earnings per share for 2024 have been revised upward to $6.55, which is approximately 4% lower than the market consensus of $6.80.
Investors who are bullish on the stock are likely to concentrate on its valuation and robust free cash flow generation, which supports stock buybacks and inventory control. The company's sound gross margins and potential for growth are also seen as positive indicators. On the other hand, concerns have been raised regarding negative customer traffic and declining comparable sales, which lag behind those of competitors like Dick's Sporting Goods (NYSE:DKS) and Walmart (NYSE:WMT) in terms of value offerings.
The firm notes that Academy Sports is currently positioned between higher-end athletic products and value offerings, as it lacks premium athletic product lines like HOKA and On. However, the company is actively working to enhance product newness, value, and traffic. There is a risk that new store openings may yield lower returns if comparable sales do not improve. Nevertheless, Evercore ISI remains optimistic about the stock's valuation, which is under 10 times its estimated 2025 earnings, presenting an attractive risk/reward scenario at a $50 share price, assuming sales recover.
The revised base case price target of $60 is based on an 8 times multiple of Evercore ISI's 2025 earnings estimate of $7.50 per share. The firm highlights that Academy Sports' strong free cash flow, which is over $300 million after accounting for more than 6% store growth, provides a solid foundation for continued buybacks and supply chain enhancements.
In other recent news, Academy Sports & Outdoors Inc. has been the subject of several adjustments by analyst firms. UBS downgraded the company's stock from Buy to Neutral and reduced the price target to $58 from $81, citing concerns about the company's financial guidance for fiscal year 2024 and debates about market share shifts. Meanwhile, Truist Securities reduced its price target from $75 to $73, maintaining a Buy rating, but noted slower growth in Q2 due to economic challenges.
On the brighter side, Academy Sports reported a slight increase in Q4 sales, reaching $1.8 billion, despite a 3.6% decrease in comparable store sales. The company also announced an exclusive partnership with DoorDash (NASDAQ:DASH), offering on-demand delivery services from its 285 stores across 19 states.
Other analyst firms have also weighed in on Academy Sports. Jefferies initiated coverage with a Buy rating and a price target of $85, while B.Riley increased its share price target from $65 to $72, maintaining a Buy rating. TD Cowen, however, reduced its share price target from $86 to $82, while still maintaining an Outperform rating.
InvestingPro Insights
As Academy Sports & Outdoors Inc. navigates a challenging retail environment, the latest data from InvestingPro provides a clearer picture of the company's financial health and market position. With a market capitalization of $3.81 billion and a P/E ratio of 8.16, the company stands out for its value-oriented approach. More importantly, the management's aggressive share buyback strategy, as highlighted in one of the InvestingPro Tips, signals a strong belief in the company's intrinsic value and a commitment to enhancing shareholder returns. Additionally, the company's liquid assets surpass short-term obligations, which is a reassuring sign of financial stability.
Despite recent price declines, with a 23.03% drop over the last three months, Academy Sports is still trading at a low earnings multiple, which could attract investors looking for undervalued opportunities. Furthermore, the company's gross profit margin remains robust at 34.26%, aligning with the gross margin range mentioned in the article. Investors may also take note that analysts predict the company will be profitable this year, which is supported by a profitable track record over the last twelve months. For those considering a deeper dive into the company's prospects, there are additional 9 InvestingPro Tips available, which can be accessed for further analysis.
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