Shares in retailer Dick’s Sporting Goods’ (DKS) edged higher today despite a leading analyst declaring there were too many “unknowns” ahead of its $2.4 billion Foot Locker (FL) deal to justify a Buy rating.
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TD Cowen analyst John Kernan kept a Hold rating on the stock, despite hiking its price target from $205 to $231.
Running Risks
Kernan said the Hold rating was “based off unknown risks associated with the Foot Locker business.”
This is in reference to the $24 a share offer made for Foot Locker in May this year. It was, at that point, an 86% premium to the stock’s last closing price.
The DKS share price initially suffered post-announcement, but has bounced back since – see below.
That dip was mostly down to wariness over the health of the Foot Locker business. It has struggled since the Covid-19 pandemic shut down its stores or forced them to operate at reduced capacity. Prior to news of the acquisition, FL stock had lost about 40% of its value this year and was down nearly 50% over the past five years.
Other analysts have previously warned that running an athletic specialty retailer that focuses on fashion lifestyle consumers, and operates smaller stores, many of which are in malls or in urban street locations, is not within the “core competencies” of Dick’s Sporting Goods.
The deal is not only making investors sweat.
Senator Elizabeth Warren has recently called on the Federal Trade Commission and Department of Justice to consider blocking the deal, writing in a letter to the agencies that the merger could cut jobs, raise prices and reduce competition.
Deal Drivers
However, Kernan is, despite his uncertainty, relatively optimistic. He said that one driver for the deal, which is expected to close in the second half of this year, is that sportswear giant Nike (NKE) has a vested interest in seeing the deal work.
“The cost and procurement synergies total $100 million to $125 million and investors seem to be warming to these figures in our conversations. Headcount reductions and store rationalization are also likely,” Kernan said.
Kernan added that if Foot Locker can return to a 4% to 5% EBIT margin, Dick’s has a path to meaningful earnings per share, see below, and free cash flow growth. Indeed, he sees Dick’s posting EPS of $16.47 in 2027 versus the consensus of $16.26.
For full year 2026, he said Dick’s should see a 3% lift in same-store sales.
Is DKS a Good Stock to Buy Now?
On TipRanks, DKS has a Moderate Buy consensus based on 8 Buy and 10 Hold ratings. Its highest price target is $247. DKS stock’s consensus price target is $216.57, implying a 3.3% downside.
