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Pennies from heaven. Pennies for your thoughts. Pennies as the Devil.

Last Friday, shares of

The Sports Authority

(TSA:NYSE), the world's largest full-line sporting goods retailer, got dumped on by investors, plunging 4 1/8, or 19%, to 17 1/8. Why the severe decline? Pennies. Just three of them.

The plunge stemmed from an earnings estimate recalculation by Christopher E. Vroom, an analyst with

Alex. Brown

, a co-underwriter of The Sports Authority's 1994 IPO along with

Goldman Sachs

. After studying his post-Christmas spread sheet, Vroom dropped his earnings estimate for the company's fourth quarter from $0.53 per share to $0.50 per share, citing weaker-than-expected same-store sales.

First Call

consensus estimates on Wednesday were $0.51.

Vroom did not downgrade the stock, which he continues to rate a strong buy.

Vroom was unavailable for comment. But his associate, Michael F. Legg, says earnings estimates were lowered after the company told his boss, without giving any specifics, that sales were soft in December. It appears that The Sports Authority was "not immune to the overall retail weakness in the holiday selling period," says Legg.

But some analysts who follow the stock are calling the sell-off an overreaction that was precipitated by investors who are too quick to pull the plug on retail stocks at the first hint of trouble. The fundamentals of the company are still intact, says William R. Armstrong, an analyst with New York's

Fahnestock & Co.

, who describes Friday's selling as "irrational." Fahnestock has not done any underwriting work for The Sports Authority.

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As a result, Armstrong upped his rating of The Sports Authority from a buy to a strong buy on Monday and expects the stock to reach 30 within the next 12 months. The stock is currently trading at 15 times 1997 earnings expectations.

According to

First Call

consensus earnings estimates, The Sports Authority's earnings per share are expected to grow 23% annually over the next two years.

While Armstrong agrees with Vroom's prediction that same-store sales for the fourth quarter will be lower than original estimates, he says that The Sports Authority is benefiting from strong expansion. In fiscal 1997, the company is expected to open 29 new stores for a total of 165, according to Legg, and another 30 to 35 in fiscal 1998.

When they enter a new market, it's to the detriment of the established sporting goods stores in the area, says Michael Binger, the portfolio manager of

Lutheran Brotherhood Opportunity Growth

, which has a position in the company. They are "the best executioner of this niche retail strategy."

Tom Doyle, the research director of the

National Sporting Goods Association

, says that in the highly fragmented $18 billion market dominated by mom-and-pop shops, there is plenty of room for The Sports Authority to increase its 3% market share. "I don't see anyone that is going to block their growth," say Doyle.

Their two biggest competitors--

Sports & Recreation

(WON:NYSE) and


(SPMT:Nasdaq)--sputtered in fiscal 1996 and 1997, racking up losses amid operating difficulties. And last year, another competitor,

Herman's World of Sporting Goods

, went out of business.

"Their lead is only getting bigger, that's why you want to own the stock," says Alexander.

The reaction to Vroom's earnings estimate change was heightened by The Sports Authority's policy of releasing its same-store sales only on a quarterly basis as opposed to most other retailers who provide those numbers on a monthly basis.

Vroom lowered his expectations of same-store sales growth from 3% to 1% for the quarter, but still anticipates 3% same-store sales growth in fiscal 1998.

The company's net income for the fiscal third quarter ended October 27, 1996 was $2 million, or six cents a share, as compared to $600,000, or two cents a share, for the comparable period in 1995.

The Sports Authority spokespeople were unavailable for comment.

By Avi Stieglitz