Foot Locker, Inc. FL’s being benched. Four analysts reiterated and five downgraded the stock to a Hold rating after its Friday earnings whiff, which prompted a 32-percent sell-off.
But even as shares continue downward, some see an opportunity for redemption.
“We are buyers after the sharp sell-off as the sales issues, in our view, are temporary, largely a function of a pause by Nike after a successful multi-year run in premium basketball,” Buckingham Research Group analyst Scott Krasik wrote in a Monday note.
Buckingham joined Jefferies and Susquehanna in maintaining contrarian Buy ratings.
“While we acknowledge some investors will stay on the sideline until FL proves it can reaccelerate comps, when it does, we expect multiple expansion,” Krasik noted.
Buckingham's Defense
His confidence is justified by stagnation in the sports retail space.
“We do not think premium athletic footwear is facing a commoditization of the category (i.e., athletic apparel) nor do we see major channel and/or competitive shifts to Amazon or others,” Krasik wrote.
By his estimates, Foot Locker remains in a strong competitive position particularly to sell Nike Inc NKE and adidas AG (ADR) ADDYY, despite the former’s newly launched partnership with Amazon.com, Inc. AMZN. Buckingham sees non-disruptive product overlap of 30 percent with Amazon.
At the same time, he expects Foot Locker to stay on top of trends in athletic footwear fashion and continue leading the industry by adapting to consumer shifts toward running rather than basketball, a sport that previously propelled the chain to dominance.
“Until then, FL generates a considerable amount of free cash flow (even at a lower level of profitability) and has the balance sheet to withstand a prolonged downturn in sales trends,” Krasik noted.
Considering multiple compression across the greater retail space, he lowered his price target from $61 to $47, a new value suggesting 43-percent upside from Monday’s $32.98 value. The stock was trading down 5.18 percent at $32.60 at time of publication.
Related Links:
Sports Retail Shaken Up Amid Word Nike Could Sell Direct On Amazon
Breaking Down The Footwear Sector: Adidas Pipeline Still Strong, Under Armour Under Pressure
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