Shares of Dick's Sporting Goods (DKS) are sliding after Morgan Stanley downgraded the stock to Underweight, a rating equivalent to "sell," citing the damage square footage growth is inflicting on the company's return on invested capital. Analyst Simeon Gutman believes new stores no longer mean increased sales in an omni-channel world. Conversely, Deutsche Bank recently said it remains positive on the company, seeing The Sports Authority's possible liquidation as good news for Dick's.

GREAT IMBALANCE: Morgan Stanley downgraded Dick's Sporting Goods to Underweight from Equal Weight with a $39 price target. Morgan's Gutman expects Dick's return on invested capital to be pressured over time given the "great" imbalance between store only comps, which are down 1.4%, and square footage growth, which is up 7.1%. The analyst said retail companies continue to add space because they see new stores as a means of capturing untapped market share potential, but the classic mantra of new stores equaling higher sales may no longer apply in an omni-channel world. Gutman also downgraded another retailer in a different space, vitamin and supplement seller GNC (GNC), to Equal Weight on similar concerns.

MORE POSITIVE VIEW: On May 1, Deutsche Bank analyst Mike Baker said that several news outlets had reported that The Sports Authority had decided against reorganizing and instead will opt to liquidate. The analyst views the news as positive for Dick's, noting it will likely be the biggest recipient of Sports Authority's approximately $2.6B of sales. Baker had previously estimated that if Dick's picks up 20% of these lost sales that would equate to $520M in incremental sales, equivalent to a 7% boost to comps if the share pick up happens in the first year. However, the analyst notes that there will be a short term disruption to Dick's due to liquidation sales, with near-term numbers being negatively impacted. He expects the company to acquire some of Sports Authority locations to make it easier to pick up market share. The analyst has a Buy rating and $52 price target on Dick's shares.

ANOTHER TO WATCH: Big 5 Sporting Goods (BGFV), a much smaller competitor in the same space as Dick's, reported lower than expected quarterly revenue and an unexpected quarterly loss earlier this week and gave profit guidance for the new quarter that missed the consensus forecast of analysts.

PRICE ACTION: In morning trading, Dick's Sporting has slid more that 3.3% to $45 per share.