Analysis Shows Foot Locker Can Stand Its Ground Against Amazon

Foot Locker Inc. FL's recent woes may provide a good buying opportunity at current depressed levels. Last week, Barclays noted that if the company were to never grow again, it still would be worth more than its trading at.

Morgan Stanley analyst Jay Sole, sees an excellent opportunity to buy Foot Locker when concerns are high and the stock price is low — currently a situation that shares find themselves in.

“The stock's current 9x P/E implies market worries about share loss to Amazon and brands’ own websites. Our analysis from AlphaWise and other sources suggests FL can defend its industry position,” said Sole.

Foot Locker shouldn't be concerned by Amazon.com, Inc. AMZN's attempted onslaught into the retail footwear industry, because both companies target different segments of the market. Less than 5 percent of Foot Lockers top 200 selling shoes are available on Amazon and footwear giants still want a premium mall presence that Foot Locker provides. Brands continue to allocate their best products for the premium retailer.

Foot Locker’s market share is moving to 29 percent from 31 percent, but Sole believes the market is pricing in a 25-percent share.

While the market thinks share loss explains Foot Locker’s recent weak comps, Morgan Stanley sees the recent dip as due to short-term factors: February’s tax refund shift, changing fashion trends, and weak basketball footwear sales — a catalyst that the company most certainly will have to address.

“The basketball shoe is totally out of fashion right now and I don’t think any player can bring that back," NPD Group’s Matt Powell told Benzinga in June.

Morgan Stanley upgraded its rating on Foot Locker from Equal Weight to Overweight but lowered its price target from $70 to $65.

At time of publication, shares of Foot Locker were up 4.73 percent at $51.15.

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Barclays Says If Foot Locker Never Grows Again, It's Still Worth More Than Its Trading At Now