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Dynegy Inc., The Blackstone Group, NRG Energy, Dick's Sporting Goods and Foot Locker

^{Published on 2010-11-18 07:12:14 - Market Wire}
 

CHICAGO--([ BUSINESS WIRE ])--Zacks.com Analyst Blog features: Dynegy Inc. (NYSE: [ DYN ]), The Blackstone Group (NYSE: [ BX ]), NRG Energy Inc. (NYSE: [ NRG ]), Dick's Sporting Goods Inc. (NYSE: [ DKS ]) and Foot Locker Inc. (NYSE: [ FL ]).

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Here are highlights from Wednesdaya™s Analyst Blog:

Dynegy Just Got Pricier

Houston-based merchant generator, Dynegy Inc. (NYSE: [ DYN ]) just got dearer for Private Equity firm The Blackstone Group (NYSE: [ BX ]) its suitor. Faced with a lukewarm response from shareholders for the deal, Blackstone on Tuesday raised its bid for Dynegy by 11% to $5 per share from the earlier bid of $4.50.

Blackstone was forced to raise the bar after two major holders of Dynegy, billionaire investor Carl Icahn and Seneca Capital went public with their sentiments about the deal being undervalued. With the new bid on Tuesday from Blackstone, Dynegy has seen its stock price soar. It has spiked 8.4% or 39 cents to close at $5.02 on Tuesday.

However, the deal is far from over on the Dynegy front with the $5 per share bid still being seen as undervalued by Carl Icahn and Seneca Capital. This has stalled the smooth ride of The Blackstone Group since August 2010, when it first announced that it intended to acquire Dynegy. Post-acquisition, Blackstone plans to sell a portion of Dynegya™s generation assets to NRG Energy Inc. (NYSE: [ NRG ]), which is proactively looking at increasing its presence in California.

The deal was touted as win-win for both parties, with Dynegya™s shareholders hit hard by mark-to-market losses from forward power sales, enjoying near-term valuation upside.

On the other hand, Blackstone was eyeing Dynegya™s generation assets -- a portion of which would be sold to NRG Energy, while the rest would be margin-accretive once the Midwest power market improves.

Dynegya™s wholesale electric power -- supplied to utilities, cooperatives, municipalities and other energy companies in the Midwest, the Northeast and the West Coast -- provides a relatively stable and growing earnings stream.

Dicka™s Comfortably Beats

Dick's Sporting Goods Inc. (NYSE: [ DKS ]), an authentic full-line sporting goods retailer, posted strong third quarter 2010 results, ended October 30, 2010, on the heels of higher sales and improved margins. Quarterly earnings climbed to 22 cents a share from the year-ago level of 16 cents and comfortably outpaced its earnings guidance in the range of 15 to 16 cents. Dicka™s also surpassed the Zacks Consensus Estimate of 17 cents.

A 5.1% increase in consolidated comparable-store sales (comps) and opening of new stores aided the 9.0% year-over-year increase in total revenue, which climbed to $1,079.0 million. Total revenues beat the Zacks Consensus Estimate of $1,038.0 million.

The comps growth was driven by a 3.8% rise in Dick's Sporting Goods store sales, a 2.4% increase in Golf Galaxy store sales, coupled with an 82.4% growth in e-commerce.

Gross profit came in at $307.1 million, up 15.1% year over year. Gross margin improved 160 basis points to 28.5%. Operating profit dipped 11.3% year over year to $28.2 million, resulting from higher selling, general and administrative expenses and pre-opening expenses.

Financial Aspects

Dicka™s ended the quarter with cash and cash equivalents of $159.4 million and long-term debt of $145.9 million. The debt-to-capitalization ratio was approximately 10.7%.

Store Update

In the reported quarter, Dicka™s opened 12 and remodeled 8 Sporting Goods stores, relocated 1 Dick's Sporting Goods store and closed 12 underperforming Golf Galaxy stores, bringing the total to 437 stores in 42 states. Golf Galaxy store count in 29 states came in at 79.

Dicka™s plans to open 8, relocate 1 and remodel 1 Dick's Sporting Goods stores in the fourth quarter 2010. The company also targets to open 2 Golf Galaxy stores in the upcoming quarter.

In fiscal 2010, the company expects to open 26, relocate 2 and remodel 12 Dick's Sporting Goods stores. Dicka™s also has plans to open 2 new Golf Galaxy stores, and close 12 underperforming Golf Galaxy stores in 2010.

Guidance

For fourth quarter 2010, Dicka™s expects earnings per share to be between 69 cents and 71 cents and comps to rise between 3% and 4%. The Zacks Consensus Estimate for the quarter is pegged at 67 cents a share.

For full year 2010, management expects earnings in the range of $1.56 to $1.58 per share, while comps are expected to increase in the range of 4.5% to 5.5%. The Zacks Consensus Estimate for fiscal 2010 earnings stands at $1.48.

Dicka™s expects to incur capital expenditure of approximately $145 million on a net basis in 2010.

Our Recommendation

Pittsburgh-based Dick's Sporting Goods is a full-line sporting goods retailer offering a broad assortment of brand name sporting goods equipment, apparel and footwear in a specialty store environment.

Dicka™s remains the dominant player in the industry with significant store expansion and potential share gain opportunities in the U.S. We remain optimistic about the companya™s competitive position, quality of management and consistency of earnings growth.

However, the sporting goods market is highly competitive in nature and Dicka™s failure to compete effectively in terms of price, quality or product will hamper its growth potential. The company faces competition from Foot Locker Inc. (NYSE: [ FL ]) and others.Moreover, a weak economy will likely continue to weigh on the companya™s profitability in the long term.

Dick's Sporting Goods currently has a short-term Zacks #3 Rank ('Hold') rating. We maintain our long-term Neutral recommendation on the company.

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