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Amid its $2.4 billion deal to acquire shoe retailer Foot Locker (FL), Dick's Sporting Goods (DKS) is maintaining its full-year profit forecast.
Morningstar senior equity analyst David Swartz comes on The Morning Brief to weigh in on Dick's recent stock activity and share his thoughts on the retailer's acquisition of Foot Locker.
Also catch David Swartz weigh in on department store Macy's (M) progress in its turnaround plan.
To watch more expert insights and analysis on the latest market action, check out more Morning Brief here.
In your notes, you mention and given your star rating on the firm, I can tell that you have questions about the valuation. How does the Foot Locker acquisition impact how you're thinking about the valuation of Dicks going forward?
Yeah, it's hard to say because it's still early. The Foot Locker deal was just announced last week and people are still trying to assess how it's going to impact Dicks in the short term and the long term. Uh, I was probably one of the few that actually thought that Dicks was quite overvalued when it was over $200 a share. I thought it was worth closer to $160. Um, so when the stock fell after the Foot Locker deal, to me that was partly because Dick's stock was overvalued to begin with. I understand why Dick's stock was at such a high level because Dicks has been performing extremely well in the last few years. Uh, the business has really transformed and it's been outperforming everybody, certainly including Foot Locker. And so a lot of people are very unhappy that Dicks is combining with Foot Locker, which realistically is an inferior business, but I think that Dicks is buying it for a very fair price at about two and a half billion dollars for Foot Locker. The Foot Locker stock price has been weighed down. And so, even though Dicks is paying a premium over where the stock had been trading, uh, they're still, I think, buying it at a fair price, at only about six times depressed EBITDA. And I think from Dick's management's perspective, they're able to buy Foot Locker here for a very attractive valuation.
All right. We are going to be watching closely as that deal looks to close. David, thanks so much. Appreciate it.