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Academy Sports stock holds Outperform rating as analyst eyes long-term growth potential

EditorAhmed Abdulazez Abdulkadir
Published 11/09/2024, 11:20
ASO
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On Wednesday, Evercore ISI adjusted its price target for Academy Sports & Outdoors Inc. (NASDAQ:ASO) to $65.00, up from the previous $60.00, while retaining an Outperform rating on the stock. Despite second-quarter comparable sales (comp) falling 7% and missing expectations, there was a positive shift in August, sparking optimism for a potential increase in second-half comps.


Management has revised the company's year-to-date outlook downwards for both revenue and earnings, citing a cautious consumer environment, yet they plan to maintain healthy gross margins through controlled inventory management.


The company's comparable transaction count decreased by 7.4%, indicating a drop in customer traffic, influenced by challenges faced by middle to lower-income consumers, adverse weather conditions, and a dip in hardgoods sales. Event-driven shopping patterns also contributed to the fluctuating sales figures. Academy Sports & Outdoors' earnings per share (EPS) forecast has been reduced to a midpoint of $5.83, approximately 6% below the analyst consensus of $6.24.


Despite these challenges, bulls are likely to remain focused on the company's valuation, strong free cash flow (FCF) generation, share buybacks, and inventory control, which saw a 5% unit reduction in the second quarter. The company's gross margins remain robust, with the potential for growth when consumer discretionary unit demand rebounds.


On the other hand, bears may concentrate on the negative transaction trends and weakening comps, noting that Academy Sports & Outdoors lags behind peers such as Dick's Sporting Goods (NYSE:DKS) and Walmart (NYSE:WMT) in the value segment.


The firm acknowledges that Academy Sports & Outdoors is currently in a transitional phase, lacking in high-end athletic product lines but actively working to enhance value, newness, and customer traffic. There is a risk that new store openings may yield lower returns if comp sales do not improve.


Evercore ISI remains optimistic about the stock's valuation, which is under 10 times its estimated 2025 earnings, offering an attractive risk/reward scenario in the low to mid $50s if sales trends reverse. The company's strong free cash flow, projected to exceed $300 million after accounting for more than 6% store growth in 2024 and increasing to over 8% in 2025, supports ongoing share buybacks and supply chain enhancements. The new price target of $65 is based on approximately 9 times the firm's estimated 2025 earnings of $7.10.


In other recent news, Academy Sports & Outdoors reported a decline in second-quarter sales, with total revenue reaching $1.55 billion, marking a 2.2% decrease compared to the same period last year. This was attributed to economic pressures, severe weather events, and challenges with a new warehouse management system. Despite these setbacks, the company is focusing on growth strategies, including expanding its store footprint and enhancing its online presence.


JPMorgan (NYSE:JPM) recently cut its price target for Academy Sports & Outdoors to $52, while maintaining a Neutral rating. This adjustment followed the retailer's miss on second-quarter comparable store sales and earnings per share, leading to a reduction in its net income forecast for fiscal year 2024 by approximately 13%.


Academy Sports & Outdoors has revised its annual sales guidance to a range of $5.9 billion to $6.07 billion. The company also announced a dividend of $0.11 per share and plans to open between 160 to 180 new stores over the next five years. The launch of the My Academy Rewards program and the growth of same-day delivery via DoorDash (NASDAQ:DASH) are part of the company's strategic initiatives.


The company's expansion to 19 states and plans for a new distribution center in early 2026 are seen as positive steps towards achieving its growth objectives.


InvestingPro Insights


Academy Sports & Outdoors Inc. (NASDAQ:ASO) presents several intriguing financial metrics and strategic moves that may interest investors. With a market capitalization of $3.99 billion, the company is trading at a low earnings multiple with a P/E ratio of just 8.16, based on the last twelve months as of Q1 2025. This valuation could be a signal of the stock's attractiveness, especially considering management's aggressive share buyback strategy, which often indicates confidence in the company's future performance. Additionally, the company's liquid assets surpass its short-term obligations, providing financial stability and flexibility.


Investors may also find encouragement in the company's profitability track record. Over the last twelve months, Academy Sports & Outdoors has maintained a gross profit margin of 34.18% and an operating income margin of 10.65%. Furthermore, analysts are predicting the company will remain profitable this year. It's worth noting that the company has achieved a high return over the last decade, as well as a strong return over the last five years, which could be indicative of its long-term performance potential.


For those seeking more in-depth analysis, InvestingPro offers additional tips and insights on Academy Sports & Outdoors. There are currently 6 more InvestingPro Tips available for ASO, which can be accessed to gain a more comprehensive understanding of the stock's potential. The current fair value assessments from analysts and InvestingPro suggest a range between $64 and $70.7, which implies an upside from the previous close price of $55.38.


These insights and metrics from InvestingPro could provide valuable context for investors considering Academy Sports & Outdoors Inc. as part of their investment portfolio.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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