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Summary
- The former tiger cub’s firm has a 3.88% stake in the company.
Lone Pine Capital, the hedge fund founded by Steve Mandel (Trades, Portfolio) in 1997, revealed a stake in Dick’s Sporting Goods Inc. (DKS, Financial) earlier this week.
The Greenwich, Connecticut-based firm uses a long-short strategy that focuses on bottom-up, fundamental analysis to pick stocks. Combining growth and value strategies, the firm, whose founder was a former “tiger cub” of Julian Robertson (Trades, Portfolio), is known to not hold positions for very long.
According to GuruFocus Real-Time Picks, a Premium feature, Lone Pine invested in 3.4 million shares of the Coraopolis, Pennsylvania-based company on Jan. 25, allocating 1.32% of the equity portfolio to the stake. The stock traded for an average price of $117.91 per share on the day of the transaction.
The sporting goods retailer has a $9.91 billion market cap; its shares were trading around $114.44 on Tuesday with a price-earnings ratio of 8.86, a price-book ratio of 3.73 and a price-sales ratio of 1.
The GF Value Line suggests the stock is significantly overvalued based on historical ratios, past performance and future earnings projections.
The GF Value Line suggests the stock is significantly overvalued.
GuruFocus.com
In November, Dick’s Sporting Goods released its third-quarter results. It posted adjusted earnings of $3.19 per share on $2.75 billion in revenue, which was a 13.9% increase from the prior-year quarter. Same-store sales grew 12.2%.
Snapshot of the company’s quarterly revenue and net income growth.
GuruFocus.com
The company is scheduled to post its fourth-quarter and full fiscal 2021 financial results on March 8.
On Jan. 18, the retailer announced the closing of its senior notes offering, which consisted of $750 million worth of 3.15% senior notes due in 2032 and $750 million worth of 4.1% notes due in 2052. The proceeds from the sale will be used on general corporate purposes. Dick’s also revealed a new $1.6 billion unsecured revolving credit facility.
GuruFocus rated Dick’s financial strength 5 out of 10. Although the company has issued new long-term debt over the past several years, a comfortable level of interest coverage means it is manageable. The robust Altman Z-Score of 4.2 indicates the company is in good standing even though assets are building up at a faster rate than revenue is growing. The return on invested capital also eclipses the weighted average cost of capital, indicating value is being created as the company grows.
The company’s profitability fared better, scoring a 9 out of 10 rating. Although the operating margin has declined, the returns on equity, assets and capital top a majority of competitors. Dick’s also has a high Piotroski F-Score of 8 out of 9, implying business conditions are healthy. Despite recording a loss in operating income, consistent earnings and revenue growth bolstered the predictability rank of five out of five stars. GuruFocus data shows companies with this rank return an average of 12.1% annually over a 10-year period.
Mandel is now the company’s largest guru shareholder with a 3.88% stake. Other top guru investors are Jim Simons (Trades, Portfolio)’ Renaissance Technologies, Lee Ainslie (Trades, Portfolio), John Hussman (Trades, Portfolio), Paul Tudor Jones (Trades, Portfolio), Joel Greenblatt (Trades, Portfolio) and Caxton Associates (Trades, Portfolio).
Portfolio composition and other retail investments
Nearly 40% of Lone Pine’s $29.68 billion equity portfolio, which was composed of 39 stocks as of Sept. 30, was invested in the technology sector, followed by smaller holdings in the communication services and consumer cyclical spaces.
Lone Pine’s portfolio composition by sector.
GuruFocus.com
Other retail stocks the firm had positions in as of the end of the third quarter included Victoria’s Secret & Co. (VSCO, Financial), RH (RH, Financial), Farfetch Ltd. (FTCH, Financial), Carvana Co. (CVNA, Financial), Bath & Body Works Inc. (BBWI, Financial) and Amazon.com Inc. (AMZN, Financial).
Year-to-date performance of Lone Pine’s consumer cyclical holdings.
GuruFocus.com
The firm’s fourth-quarter trades will be released within the next few weeks.
Disclosures
I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
The views of this author are solely their own opinion and are not endorsed or guaranteed by GuruFocus.com.
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