Foot Locker Catalysts Are Few And Far Between

Foot Locker, Inc. FL investors have had a miserable year in 2017, with the stock down more than 55 percent year to date. Unfortunately for Foot Locker bulls, the company may have no fundamental justification for recovery until the second half of 2018.

On Monday, Buckingham Research Group analyst Scott Krasik downgraded Foot Locker stock from Buy to Neutral, citing the lack of positive catalysts ahead in the near term (see Krasik's track record here).

The good news for Foot Locker investors is that, according to Krasik, fears about the negative impact Amazon.com, Inc. AMZN will have on the footwear space are overblown. In addition, Krasik said Foot Locker’s strong free cash flow should allow the company to easily weather the cyclical downturn in business. However, without a clear positive catalyst over the next several quarters, he said upside for Foot Locker stock will likely be limited.

For now, the primary concerns for Foot Locker are slumping sales comps, markdowns and compressed margins, and overly optimistic consensus earnings estimates. All three issues will likely continue to weigh on investor sentiment, Krasik said.

“At this point, we view FL as a ‘show me’ story, thus until FL proves it can reaccelerate comps, FL will remain range bound at best,” he wrote.

Buckingham anticipates that negative investor sentiment will lead to Foot Locker continuing to trade at a significant earnings multiple discount to its historical average.

On top of the downgrade, Buckingham has aggressively cut its price target for Foot Locker stock from $47 to $29. The new price target represents only 8.5x Buckingham’s fiscal 2018 EPS estimate of $3.39.

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