Dick’s Sporting Goods (NYSE:DKS) is still structurally undervalued and could rerate further, Morgan Stanley analysts said in a note on Tuesday.
The analysts, who have a $175 price target on the Overweight rated stock, told investors that DKS trades in line with its pre-COVID average despite a stronger fundamental positioning today.
"Our conviction in DKS retaining most of its pandemic-driven sales and margin gains underpins our Overweight rating and positive ~1.5:1 bull/bear skew," the analysts wrote.
The analysts noted that DKS's multiple discrepancy is primarily driven by D&A, and that the company's near-term sales/margin reversion is still the more important near-term debate.
"The discrepancy between DKS's multiples looks particularly outsized because of DKS's extremely high growth rates in '20/'21. To the extent this growth moderates and D&A growth outpaces profit growth moving forward (which is possible given capex is increasing), DKS's P/E and EV/EBITDA multiples could re-converge," they added.