Dj Academy Sports & Outdoors Price Target Raised To $61.00/Share From $54.00 By Td Cowen

(19:20 GMT) Academy Sports & Outdoors Price Target Raised to $61.00/Share From $54.00 by TD Cowen

By Teresa Rivas

Academy Sports & Outdoors is the Manchester United of athletic goods stores — a once highflier that has fallen on hard times. Unlike the English football club, however, the stock is ready for a comeback.

Academy, a retailer of athletic and outdoor goods, has soared since it went public in 2020. Its initial pandemic boost continued after the virus threat receded, with impressive earnings-per-share growth, thanks to rapid store openings, new private-label products, and ongoing demand from middle- and lower-income shoppers, its largest customers.

That momentum ground to a halt recently, as disappointing same-store sales — stemming in part from inflation pressuring consumers — led investors to question the company's expanding footprint. Earnings per share declined in the fiscal year ended in February 2024 and are expected to do so again this fiscal year, which ends next month. Worries about the impact of potential tariffs have hurt the stock, too. The comparison to industry powerhouse Dick's Sporting Goods, which leapt from strength to strength in 2024, made Academy look even worse. Its shares ended the year down 12.8%.

Academy, however, is still doing plenty of things right that could boost the stock in 2025. The toughest comparisons are behind it, consensus estimates call for the return of earnings growth in the new fiscal year, and a cheap valuation makes another major tumble less likely.

The company, based in Katy, Texas, is also benefiting from consumers trading down for value, just as they are at Walmart. Its concentration in the Southeast means its stores are also benefiting from some of the best demographic growth in the country. With bad news mostly behind it, it has a clear shot on goal for the year ahead.

"Academy has value-oriented offerings. It doesn't have to do as well as Dick's to be a success; as an investment it can be an incredible value even if it's not the category leader," says Raife Giovinazzo, a portfolio manager at Fuller Thaler Asset Management who owns the shares.

In the world of sporting goods, leadership is overrated. The category is a fragmented one — even Dick's doesn't command more than 10% market share — and depends just as much on apparel and footwear as it does on big-ticket items that don't need replacing as often, like golf clubs and kayaks. That leaves plenty of room for companies like Academy that cater to a value-focused consumer even as it adds to its brand roster. It recently signed a partnership with Nike, and some are hopeful that it will soon carry shoes from hot new entrants like Deckers Outdoor's Hoka and On Holding.

Miles Lewis, a portfolio manager at Royce Investment Partners who owns the shares, also likes that Academy recently implemented a new customer-data platform, which allows it to offer more-targeted ads, while its new loyalty program is on track to have 10 million members after launching this summer.

"[Academy] benefits from the Target effect, where you can't go in without spending $100," says Lewis, who notes that athletic gear is less discretionary than many investors might think; just ask any parent with a child in sports. "We think the stock could be north of $100 in a few years. And on the flip side, there is limited downside, given the low starting point on valuation."

The stock certainly looks cheap. At nine times 12-month forward earnings, Academy trades above the 7.6 average since its initial public offering, but it's well below the double-digit multiples of peers such as Dick's, Foot Locker, and Boot Barn Holdings. Its valuation puts it more in line with department stores — even though it's nothing like those existentially challenged behemoths. Analysts expect Academy to earn $6.56 a share in the fiscal year ending in January 2026, a 10% climb from fiscal 2025, and return to same-store sales growth after three years of declines.

In addition, Academy has a clean balance sheet and a free-cash-flow yield over 10%, while gross margins have held steady around 33% in recent years — unlike those of retailers that gave back their pandemic expansion. Academy is also actively repurchasing its own stock, reducing its share count by more than 20% since March 2021.

"We love their capital allocation," says Lewis. "They've returned 7.5% of their market cap over the past 12 months to shareholders, between dividends and buybacks."

Not everyone is so upbeat. Less than half of the 21 analysts tracked by FactSet have Buy ratings or the equivalent on the stock. The shares did score a new bull in December, when Citigroup analyst Paul Lejuez initiated coverage of Academy with a Buy rating and $65 price target, up 13% from Tuesday close of $57.57.

Lejuez argues that as comparable-sales pressures abate, Academy can deliver low-single digit same-stores sales growth and high-single digit square-foot growth in new store openings. Combined, that could lead to a compound annual growth rate of 7% for Academy's top line over the next five years. The company's strong margins and ongoing share buybacks equate to midteens earnings growth annually over the same period.

After a disastrous 2024, Academy has a lot to prove to shareholders, and if profits and comps don't return to year-over-year growth soon, the stock will remain stuck. Yet with low expectations, high consumer interest in sporting goods, and stock buybacks by management, the outlook for the shares is bright.

Get ready for Academy sports stock to soar back up the standings.

Write to Teresa Rivas at teresa.rivas@barrons.com

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