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Sporting Goods Retailers Still Look Fit

Editor's note: As part of our partnership with PBS's Nightly Business Report, TheStreet's Michael Baron will appear on NBR Tuesday (check local listings) to discuss top-rated sporting goods retailer stocks.

NEW YORK ( TheStreet) -- The official kickoff of the holiday shopping season looms at the end of the week and following the 1.2% increase in retail sales in October, Wall Street is expecting Americans to come out in force.

Retail investors looking to capitalize on the expected heavy spending may be hard-pressed to find value given how well the group has done in 2010. The S&P Retail Index is up roughly 30% year to date vs. a 7.2% gain for the S&P 500 Index. One sub-sector worth taking a look at is the sporting goods retailers -- namely Dick's Sporting Goods (DKS - Get Report), Hibbett Sporting Goods (HIBB - Get Report), Finish Line (FINL - Get Report), and Foot Locker (FL - Get Report).

Word on the Street

These stocks have each outperformed the overall retail group yet the majority of analysts see more upside ahead because the public companies in this industry niche have greatly improved operating efficiency in the past few years and there is still room for them to grab business from the many small players in the private sector.

"The sporting goods industry is large and highly fragmented, with the top 5 full-line sporting goods retailers accounting for approximately 20% of the market," said Olympia Capital Markets in a Nov. 11 research note. "We believe this presents a significant market share opportunity for the leading companies."

Olympia, which initiated coverage of Dick's, Finish Line and Hibbett all with buy ratings, also thinks the demand trend is improving for sporting goods. The firm notes industry sales totaled $50.6 billion in 2009, according to the National Sporting Goods Association, with a compound annual growth rate of just 1.6% over the last 10 years, but says market growth was well above average for the five-year stretch from 2003-2007 and then the recession hit, skewing the numbers.

Better merchandise is also a factor in Olympia's bullishness, in particular the success of product offerings from Nike (NKE) and Under Armour (UA).

" M ost retailers are reporting that the consistency of their merchandise is the strongest it's been in a long time with significantly reduced aged merchandise and solid in-stock positions within the hottest selling categories," the firm said. "Looking forward, we expect these trends to continue with many industry participants poised to re-approach peak operating margin levels over the next 12-24 months."

Here's a look at how TheStreet Ratings views these stocks:

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DKS $57.03 0.00%
FINL $23.62 0.00%
FL $61.85 0.00%
HIBB $49.30 0.00%
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