Dick's Sporting Goods in Good Form

Select retail names continue to act well in the market, and one name I'm watching is Dick's Sporting Goods (DKS). I use a combination of fundamental and technical analysis when evaluating a stock, and this name is strong on both fronts. Dick's operates 480 Dick's Sporting Goods stores and 81 Golf Galaxy stores. It has a market capitalization of nearly $5 billion. The stock's technical health improved dramatically when shares gapped up sharply on Jan. 12. The company slightly lowered its quarterly earnings and same-store-sales forecast because of a mild winter, but investors chose to focus on a $200 million share buyback. Shares soared 12% on the news. The company didn't lower guidance by much. It forecast fourth-quarter profit from $0.87 to $0.88 a share, compared with a previous range of $0.87 to $0.89. The company also said fourth-quarter same-store sales would be slightly negative to slightly positive vs. a prior outlook of flat to an increase of 1%. Fourth-quarter earnings are due on or around March 5. The current consensus estimate is for profit to rise 16% to $0.87 a share. Sales growth has been accelerating in recent quarters -- from 6% in the first quarter to 7% in the second quarter to 9% in the third quarter -- but fourth-quarter sales are expected to decelerate a bit, up 6% to $1.6 billion. Short interest in the stock has always been on the high side, so a big part of its Jan. 12 move was probably due to short-covering. As of Dec. 30, 10.7 million shares were held short, giving it a lofty days to cover ratio of 8.4 based on its average daily volume of around 1.3 million shares. I suspect short interest in the stock will be lower when NYSE data are released soon. When Dick's reported third-quarter earnings in November, it announced an annual dividend of $0.50 a share, giving the stock a current yield of 1.2%. It ended the quarter with $483 million in cash. Dick's is virtually debt-free, and that is pretty impressive, considering the company's aggressive expansion in recent years. Annual return on equity is impressive at 16%, and mutual fund sponsorship is also solid. There's no shortage of high-quality funds that currently own the stock. Dick's chart looks pretty darn good. It's always good to see a stock hold gains after a gap up, and Dick's has done that. It broke out over $41.15 Wednesday but closed off its highs. It could try to break out over its 52-week high of $42.11 shortly, especially if buyers continue to come into this market. Shares closed Wednesday at $41.11, up $0.93. Hibbett Sports (HIBB) also looks good in the group, but the big difference between the two is that Dick's reset its base count when it corrected 32% between May and August. It undercut the low of prior base that formed in late 2010 and early 2011. When a stock resets its base count, the thinking is that enough sellers were shaken out to pave the way for a meaningful new uptrend. DKS Weekly StockCharts.com View Chart » Hibbett, on the other hand, still hasn't reset its base count. Take a look at its weekly chart, and you'll a series of bases that formed in recent months, but the low of a prior base was never undercut. That means its most recent breakout is from a late-stage base. Keep in mind that buying breakouts from late-stage bases carries more risk and should generally be avoided. HIBB Weekly StockCharts.com View Chart »

Dick's Sporting Goods in Good Form

The retailer's fundamentals and chart both indicate upside.

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