Morgan Stanley Holds Slightly More Conviction for Dick's Sporting Goods (DKS) - Remains Sidelined

Morgan Stanley reiterated an Equalweight rating and $39.00 price target on Dick's Sporting Goods (NYSE: DKS). Morgan Stanley holds more conviction in the bull case and has reflected this in their risk/reward skew. The positive risk/reward skew
reflects a higher bear case to ~$32, driven by a slightly higher EBITDA multiple (5x from 4.5x 2016 #'s) given the 2017 EPS growth prospects as well as rumored TSA fallout potential. Morgan Stanley has not taken a more constructive view, instead deciding to be cautious on the ultimate upside from the GSI transition.

Analyst Simeon Gutman commented, "While we share some of the longer-term bear case concerns, we have slightly more conviction in the bull case and have reflected this in our risk/reward skew (28% upside versus 17% downside). Given where the stock is trading, DKS can move higher if fundamentals modestly improve (off of easy comparisons) in 2016 while it is difficult in the near-term to disprove the most meaningful catalyst to the story, the 2017 GSI contract roll off. We also think below consensus Q4 EPS is largely priced into the stock and even if 2016 guidance is weaker than expected, we believe investors would look past it in anticipation of a 2017 rebound. To be sure, the stock would likely fall on a weak 2016 guide (back to around $35 on flattish EPS growth), but we could see it gradually work its way back up if the business can deliver upside throughout the year."

For an analyst ratings summary and ratings history on Dick's Sporting Goods click here. For more ratings news on Dick's Sporting Goods click here.

Shares of Dick's Sporting Goods closed at $38.37 yesterday.

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