Deutsche Bank Downgrades Big 5 Sporting Goods (BGFV) to Sell

July 11, 2008 8:41 AM EDT

Deutsche Bank downgrades Big 5 Sporting Goods (NASDAQ: BGFV) from Hold to Sell and reduces their price target from $7 to $6. The basis for the Sell rating is due to "the likelihood of significant downside revisions over the next year, as well as Dick's likely move into BGFV's key markets."

The firm said, "We believe consumer spending will remain weak throughout the rest of 2008 and perhaps into 2009, pressuring spending on discretionary products like sporting goods. The issue will be compounded for Big Five as 64% of its stores are in Arizona, California and Nevada, three states particularly hard hit by the consumer slowdown. Therefore, we do not look for much of a recovery in comps in 2008 and 2009, while the consensus forecasts an improvement."

The firm lowers their 2008 EPS estimate from $0.75 to $0.70, which is relatively in line with consensus and guidance of $0.60-$0.85. The firm also lowers their 2009 EPS estimate from $0.68 to $0.61, which is 32% lower than the consensus of $0.90. The firm's estimates for next year assume no recovery, which they believe is appropriate. Deutsche Bank believes that the consensus is too aggressive because it assumes comps up 2%, margins better by 70 bps and EPS growth of 27%.

Big 5 Sporting Goods Corporation is a sporting goods retailer in the United States.

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