Finish Line Shares Receive A Boost After Buckingham Upgrade

Finish Line Inc FINL shares rose Wednesday following an upgrade from Buckingham Research Group. 

The Analyst

Buckingam's Scott Krasik upgraded Finish Line from Underperform to Neutral and maintained a $10 price target. 

The Thesis

Finish Line has the clear No. 2 position in the athletic specialty retail space, but the uncertainty of the category makes Krasik hesitant as to whether the company can re-accelerate growth on a sustainable basis, he said in a Wednesday note. 

Despite no alarming fundamental or balance sheet risks on the horizon and a potential takeover premium from Sports Direct now out of the stock price, Krasik is still moving to the sidelines on Finish Line.

Although reduced inventory in older discounted platforms and better basketball sales will likely drive gross margins higher, Finish Line is still heavily dependent on Jordan brand sales, which are expected to drive comp sales down 3 to 5 percent in the fourth quarter, the analyst said. 

Upcoming Epic React and Air Max 270 releases from Nike Inc NKE remain key catalysts for the industry, but are not expected to positively impact Finish Line’s sales until late February and early March, Krasik said. 

“We are taking a more balanced stance based on our expectations for relatively in-line 4Q18 results and FY19 guidance, no near- or medium-term balance sheet issues and a more reasonable valuation given the recent pullback," he said. 

“Our target multiple represents a discount to its three- and five-year averages of 12.6x, which we think is warranted as we ascribe a below-average multiple to FINL's new EPS power based on tax reform and a low probability that FINL can drive positive sustainable sales growth or expand its margins given the currently weak retail environment." 

Price Action

Finish Line shares are up 7 percent following the upgrade.

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Photo courtesy of Finish Line.