TD Cowen downgraded Dick’s Sporting (DKS) to Hold from Buy with a price target of $216, down from $245. The company’s $2.4B acquisition of Foot Locker (FL) at an 85% premium to the closing price is a “strategic mistake” and misallocation of capital, the analyst tells investors in a research note. The firm cites risks to synergies, integration and the “clear structural risk” to Foot Locker’s business for the downgrade. While a deal may be accretive to adjusted non-GAAP earnings, the return on capital would be low and Dick’s balance sheet risk rises, contends TD. The firm adds that there is little to no precedence of acquisitions at scale creating value for shareholders within softlines retail.
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