On Wednesday, Citi initiated coverage on Academy Sports & Outdoors Inc. (NASDAQ:ASO) with a Buy rating and set a price target of $65.00. According to the firm, the company's comparable sales (comps) have faced challenges over the past three years after a significant increase during 2020-2021.
However, Citi foresees an easing of comp pressures in fiscal year 2025 (F25), driven by a recovery in several categories affected by the pandemic, increased product allocation from Nike (NYSE:NKE), and contributions from new stores to the company's comparable base.
With a current total of 298 stores at the end of fiscal year 2024 (F24), Academy Sports & Outdoors is seen as having a considerable opportunity for expansion, aiming to achieve management's goal of 800 stores. Citi projects high single-digit square footage growth and low single-digit positive comps, which are expected to contribute to mid-single to high-single-digit annual top-line growth.
The analysis by Citi also anticipates EBIT margin expansion and share repurchases to support a mid-teens earnings per share (EPS) compound annual growth rate (CAGR) over the next five years. In comparison to Dick's Sporting Goods (NYSE:DKS), which has shown more consistent performance with low to mid-single-digit comps in recent years, Academy Sports & Outdoors presents a compelling risk/reward profile, as per Citi's perspective.
The firm highlights that ASO is trading at a forward fiscal year 2025 price-to-earnings (P/E) multiple of 8.3x, which is significantly lower than DKS's 14.9x.
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