The number of consumers participating in recreational activities has declined over the past half decade, in part because people have been looking to save as much money as possible.

However, as discretionary money starts flowing back into consumers’ pockets, what better way to spend that money than on recreational activities? A higher level of disposable income should help drive spending on recreation and outdoor activities higher in 2014.

Wal-Mart (NYSE: WMT) and Amazon.com (Nasdaq: AMZN) sell various apparel and recreational equipment, but one of the best plays in the market is a one-stop shop that offers a cornucopia of sports gear, Dick’s Sporting Goods (NYSE: DKS). Beyond that, this particular recreational retailer has a number of growth levers that it is set to pull in 2014.#-ad_banner-#

Dick’s operates the Dick’s Sporting Goods and Golf Galaxy retail brands, covering 44 states with over 600 locations. With its variety of sports apparel and equipment, the company will be one of the biggest benefactors of rising employment and personal income — but the story that investors should really be excited about is on the growth side.

Earnings per share (EPS) and sales for Dick’s fiscal year (which ended in October) bested consensus estimates, suggesting that customers are already loosening their purse strings. This comes as the company has been revamping its e-commerce capabilities and expanding its store base.

One of the real beauties for Dick’s is that it is positioned to gain market share through store expansion and a build-out of its e-commerce platform. Dick’s is targeting long-term store growth of 800 by the end of its 2017 fiscal year, an increase of over 50% from current levels. By that time, e-commerce sales are expected to climb above $1 billion, compared with less than $300 million at the end of 2012.

A couple of Dick’s other big initiatives includes a deal with ESPN and its new Field & Stream stores. With the ESPN deal, Dick’s will become the exclusive e-commerce supplier of all licensed merchandise and sporting goods on ESPN.com.

	Flickr/Nicholas Eckhart
	Dick’s operates the Dick’s Sporting Goods and Golf Galaxy retail brands, covering 44 states with over 600 locations.

The Field & Stream stores will target a large and fragmented outdoor market. The plan is to open more than 50 Field & Stream stores over the next three to four years. This sets Dick’s up to tap a relatively large market in which it currently has only a small foothold. Many of the main competitors in the space have only a small retail presence and lack the scalability of Dick’s.

Another benefit to the opening of outdoor Field & Stream stores is that Dick’s will be able to rotate its Dick’s Sporting Goods product lineups from hunting and fishing products to higher-return items such as NCAA merchandise and youth apparel. As far as merchandise goes, Dick’s also has a leg up when it comes to major outdoor and apparel companies: Nearly a quarter of its merchandise sales are private label, meaning it has exclusivity for certain products.

Dick’s and major comp Hibbett Sports (Nasdaq: HIBB) have underperformed other major peers, including Big 5 Sporting Goods (Nasdaq: BGFV) and Cabela’s (NYSE: CAB), over the past year. And while Dick’s and Hibbett have traded in virtual lockstep over the past year, Dick’s is poised to break out in 2014 with the help of accelerated store expansion.

What’s more is that Dick’s has the balance sheet to drive rapid store expansion and the e-commerce build-out. Dick’s has a debt-to-equity ratio of only 8%, compared with 22% for Big 5 and 195% for Cabela’s. At the end of the third quarter, Dick’s had $65 million in cash, coupled with over $380 million available under its credit facility.

DKS also pays a dividend that yields about 1%. But don’t let the low yield fool you — Dick’s is still a shareholder-friendly company. It has a $1 billion buyback program that it plans to complete by the end of 2017, equal to roughly 15% of its current market cap.

Risks to Consider:The biggest risk for Dick’s is that unemployment remains high and the economic environment weak, meaning discretionary spending fails to rebound. The other risk is that the likes of Target (NYSE: TGT) and Wal-Mart begin to cut into Dick’s market share by either cutting prices or expanding their recreational product offerings.

Action to Take –> Buy Dick’s with upside to $74. Dick’s average price-to-earnings multiple over the past decade has been 24, right in line with major peers Hibbett and Cabela’s. A multiple of 24 on fiscal 2015 EPS of $3.10 suggests a price target of $74, or nearly 30% upside.

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