Why Did Dick's Sporting Goods (DKS) Stock Surge Today?

Shares of Dick’s Sporting Goods DKS gained more than 5% during morning trading hours Wednesday after analysts from JPMorgan declared the company a “long-term survivor” in the struggling retail sector.

 On top of this bold declaration, JPMorgan upgraded DKS to “overweight” from “neutral” and raised its price target to $32, which would represent a 20% upside from the stock’s opening price on Wednesday. The firm also suggested that Dick’s is akin to Best Buy BBY, in that both brands should be stable enough to survive the retail downturn.

“[We] appreciate the company's consistent focus on investing in its stores and the efforts in 2018 to put the customer at the center,” wrote JPMorgan analysts in a note.

The firm pointed to management’s plan to initiate an “athletic inventory clean up” in the first half of the upcoming calendar year, arguing an inventory reduction will alleviate promotional pressure and improve average ticket.

Interestingly, JPMorgan’s optimistic outlook for the sport retailer’s fiscal 2018 seems to be in contrast with the company’s own tepid guidance. On Tuesday, Dick’s reported a respectable third-quarter fiscal 2017, but the stock tumbled on the back of a not-so-impressive initial view for fiscal 2018 (also read: DICK'S Sporting Falls on Soft FY18 View, Q3 Earnings Top).

While Dick’s did report earnings and sales surprises, the company warned of a tough retail environment next year. Management said that it expects the retail environment to be extremely promotional throughout 2018.

On top of this, excess inventory in the supply chain, broadened distribution strategies from some vendors, and a lack of innovation and novelty could put pressure on margins. Nevertheless, management anticipates increasing investments in e-commerce, the technology in its stores, and store payroll.

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