Leading Analyst Puts Boot Into Dick’s Sporting Goods By Warning its $2.4B Foot Locker Buy is a “Strategic Mistake”

Shares in Dick’s Sporting Goods (DKS) were badly beaten today as a leading analyst warned that it is making a “strategic mistake” by buying athletic footwear retailer Foot Locker (FL) for $2.4 billion.

Waste of Cash

DKS stock slumped 12% in pre-market trading as Five-Star-TipRanks-rated TD Cowen analyst John Kernan put the boot in lowering its rating from Buy to Hold and reducing its price target from $245 to $216.

Kernan warned that the deal would be a “strategic mistake” and a “misallocation of capital”, which in layman’s terms means a waste of money.

DKS hopes that the deal will give it a stronger foothold in footwear and boost its global presence. However, Kernan said that there was little to no precedence of M&A creating value for shareholders in softlines retail. In fact, the opposite was true with “countless examples of M&A destroying billions of dollars in value since we have covered the sector.”

More Exposed to Fashion Trends

He added that Dick’s would be left more exposed to streetwear and lifestyle fashion trends, mall-based retail, and will be competing with smaller, more nimble sneaker retailers and marketplaces that are gaining share.

Kernan said DKS would also likely need to increase its spending to further “scale and fix” Foot Locker. Its revenue has dropped for the past three years, falling below $8 billion for the year ended February 1, as U.S. consumers cut spending. It has also faced price competition from rivals such as Nike (NKE).

Continuing to stay on the attack Kernan said that DKS should instead concentrate on its House of Sport concept stores and its Gamechanger app.

Just before the final bell Kernan also declared that the deal may even be blocked over anti-trust concerns.

Is DKS a Good Stock to Buy Now?

On TipRanks, DKS has a Moderate Buy consensus based on 9 Buy and 10 Hold ratings. Its highest price target is $285. DKS stock’s consensus price target is $228.88 implying an 9.19% upside.

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