Telsey Advisory Group analyst Cristina Fernández initiated coverage on Academy Sports and Outdoors Inc ASO with an Outperform rating and a price target of $72.
The rating and price target was based on applying a P/E multiple of ~9.0x to the analyst’s projected 2024 EPS estimate of $8.00.
The analyst views ASO as a unit and sales growth story driven by market share gains as the company expands in existing markets and enters new markets with a better assortment, customer service, and go-to-market strategy.
The stock's low valuation reflects the negative comp trend that began in 1Q22, and is expected to persist until 4Q23, and skepticism around the sustainability of a low-double-digit operating margin vs. 4.1% in 2019, the analyst observed.
However, the hunting/outdoor categories that have declined the most are nearing normalization and the operating margin gains seem structural, signaling 2023 should be a reset year with a return to growth and stable profitability in 2024, noted the analyst.
According to the analyst, Academy is now poised to grow its store base by 50% from 2023-2027 to ~400 locations and expand its geographic reach to new markets.
With the retail landscape becoming highly competitive, Academy has found a sweet spot as a general sporting goods retailer serving the middle class.
As Academy's comp returns to positive in 2024 and store growth accelerates, the stock's valuation multiple should expand and its discount versus peers narrow, concluded the analyst.
Price Action: ASO shares are trading higher by 2.33% at $56.47 on the last check Monday.
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