Dick's Sporting Goods (DKS) has an asymmetric risk/reward profile, with upside optionality on the "core" and Foot Locker and limited downside, Morgan Stanley said in a Sunday note in exploring a bull case for the company.

Since April last year, the stock has underperformed the S&P 500 by about 22% on worries over Foot Locker acquisition and a potential deceleration in core, the report said.

"As DKS is on the cusp of scaling its experiential formats and of its FL transformation, we explore the bull case to frame the potential upside," the note said.

Morgan Stanley raised its bull case valuation by about 12% to $335, pointing among others to higher EPS power from experiential retail, alternative revenue streams, Foot Locker, and a rise in implied multiple.

"We see a bull case path to ~$20+ EPS by FY'28e and believe a 20 P/E is attainable given the scarcity value and strategic importance of the DKS ecosystem," the report said.

Morgan Stanley kept its overweight rating.

Price: 197.38, Change: +7.37, Percent Change: +3.88