On Monday, Hibbett Sports stock (NASDAQ:HIBB) was downgraded from Outperform to Market Perform by a Telsey advisory firm, with a new price target set to $74 from the previous $82. The adjustment reflects a cautious stance due to expectations of a tough year ahead for the company.
The downgrade is attributed to projections of a more challenging 2024 than initially anticipated, with comparable sales (comp) expected to be flat to slightly down and operating margins predicted to contract. Previously, there had been expectations of comp growth and stabilization of operating margins.
The anticipated lower sales are linked to consumers remaining cautious and a lack of newness in the market. Additionally, the contraction in operating margins is expected to result from a combination of wage inflation, which is estimated at around 6% for store labor, continuous investments in technology, and a normalization of incentive compensation.
Despite the near-term challenges, the advisory firm notes that Hibbett Sports is well-positioned for the future, particularly beyond 2024. The company's strategy of expanding its retail store fleet in smaller markets with less competition could lead to potential operating margin expansion if sales growth accelerates. The revised 12-month price target of $74 is based on applying a price-to-earnings (P/E) multiple of 8x to the new 2025 EPS estimate of $9.25, which has been adjusted down from $10.20.
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