On Wednesday, Baird adjusted its outlook on Academy Sports & Outdoors Inc. (NASDAQ:ASO) shares, reducing the price target to $68 from the previous $80 while still holding an Outperform rating on the company's stock. The revision comes in the wake of a challenging start to the fiscal year, marked by softer sales and a weaker gross margin.
The firm's analyst noted that despite the unchanged operating guidance for fiscal year 2024, with a slight increase in earnings per share (EPS) expectations due to the impact of stock buybacks, there remains a degree of skepticism among market participants.
Academy Sports & Outdoors is anticipated to implement strategies such as value-focused promotions during key shopping periods, as well as enhancements to merchandising, omni-channel operations, and loyalty programs, which are expected to contribute to sequential improvements in comparable store sales.
However, due to the current challenges, Baird has revised its estimates to align with the lower end of the company's guidance. The report suggests that the company's valuation may continue to be affected until there is greater clarity on revenue prospects.
Despite this, the firm views the stock as currently undervalued, citing metrics such as next twelve months (NTM) earnings per share (EPS) and earnings before interest, taxes, depreciation, and amortization (EBITDA) multiples of approximately 8x and 5x, respectively, and a high single-digit free cash flow (FCF) yield. This valuation underpins Baird's belief in a favorable long-term risk/reward balance for the stock, as reflected in the newly set $68 price target.
In other recent news, Academy Sports & Outdoors experienced a shift in its stock outlook as BofA Securities downgraded the rating from Buy to Neutral and reduced the price target to $63 from the previous $75.
This followed the company's first-quarter earnings, which did not meet the expectations previously set by analysts, with a GAAP EPS of $1.01, falling short of the forecast by $0.19.
Additionally, same-store sales saw a decrease of 5.7%, a steeper decline than the 5% drop forecasted. This led to several analyst firms adjusting their outlook on Academy Sports, with TD Cowen reducing its price target to $58 from $82 but maintaining a Buy rating, and Evercore ISI cutting the price target from $70 to $60, maintaining an Outperform rating.
UBS also revised its stance, downgrading the stock from Buy to Neutral and reducing the price target to $58. Academy Sports also announced a partnership with DoorDash (NASDAQ:DASH), offering on-demand delivery services from its 285 stores across 19 states. These are some of the recent developments involving Academy Sports & Outdoors.
InvestingPro Insights
Academy Sports & Outdoors Inc. (NASDAQ:ASO) is navigating a complex fiscal landscape, but certain metrics suggest there may be underlying strengths not immediately apparent in its share price. According to the latest real-time data from InvestingPro, ASO boasts a market capitalization of $3.81 billion and is trading at an attractive earnings multiple, with a P/E ratio of 8.16 and an even lower adjusted P/E ratio for the last twelve months as of Q4 2024 at 7.52. This aligns with Baird's assessment of the stock being undervalued.
InvestingPro Tips highlight that management's aggressive share buyback strategy could signal confidence in the company's future, which is a positive sign for investors. Additionally, despite recent downward revisions of earnings by analysts, the company is expected to remain profitable this year and has been profitable over the last twelve months. Furthermore, the company's liquid assets exceed its short-term obligations, indicating financial stability.
For those considering an investment in ASO, the InvestingPro platform offers additional insights, with a total of 10 InvestingPro Tips that can help investors make a more informed decision. To access these valuable tips and metrics, consider using the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription at https://www.investing.com/pro/ASO.
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