On Friday, Piper Sandler resumed coverage on Foot Locker (NYSE:NYSE:FL), assigning the stock a Neutral rating and setting a price target of $30.00.
The firm highlighted the stock's substantial rebound since early July, noting a 40% increase compared to a flat performance of the S&P 500 index.
Despite this recent uptick, analysts remain cautious due to the stock trading at a higher multiple of 16-17 times the estimated 2025 earnings per share, surpassing the 3-year average of 10-12 times.
Foot Locker's second-quarter results for 2024 showed positive trends, including momentum in non-Nike brands and improved allocations from Nike (NYSE:NKE) compared to the previous year.
However, Piper Sandler expressed skepticism regarding Foot Locker's guidance for the second half of 2024, which anticipates a significant improvement in both revenue and margins.
The firm pointed out that while some factors are within the company's control, such as the accelerated pace of store remodels and the rollout of a new loyalty program, others are not, like the expected return to growth with Nike in the fourth quarter of 2024 and the recovery of promotional pressures from the second half of 2023.
The analysts also noted Foot Locker's efforts to diversify its brand mix beyond Nike, with successful inclusions like On Running, HOKA, UGG, and New Balance. Despite these efforts, Foot Locker's sales remain heavily dependent on Nike, accounting for 60% of total sales.
Concerns were also raised about potential market share losses due to brands prioritizing their direct-to-consumer channels and the soft macroeconomic environment that may negatively impact discretionary spending, especially since half of Foot Locker's customers earn less than $50,000 annually.
Piper Sandler's report included a bull versus bear case range for Foot Locker's stock, with a potential high of $38 and a low of $20. The firm remarked on the company's earnings before interest and taxes (EBIT) margins, which have compressed over the last two years but are now on an upswing.
Despite this, the consensus estimates for a roughly 40% growth in earnings per share might be overly optimistic, particularly if the broader economic conditions worsen.
In other recent news, Foot Locker's financial performance and strategic initiatives have been the center of attention for several analysts. BTIG maintained a neutral rating for Foot Locker, adjusting its Q2 earnings per share (EPS) estimate to a loss of $0.10 from a previous estimate of a loss of $0.07.
This adjustment is due to anticipated higher selling, general, and administrative (SG&A) expenses. Meanwhile, Telsey Advisory Group also maintained a Market Perform rating for Foot Locker, highlighting the potential for growth from a diversified brand portfolio.
Citi has revised its outlook for Foot Locker, raising the price target to $33.00 and predicting a narrower Q2 loss of $0.02 per share, attributing this to stronger comparable store sales and gross margin.
However, Morgan Stanley downgraded Foot Locker shares from Equalweight to Underweight, lowering the price target to $18.00 due to a more cautious forecast for the company's 2024 earnings per share (EPS).
Foot Locker also maintained a Hold rating from Argus due to anticipated near-term earnings pressure as the company undergoes a strategic transformation.
The company's strategic initiatives, including the relaunch of the FLX rewards program and partnerships with brands like Nike, are recognized as potential growth drivers. However, analysts also expressed caution over potential cost increases and lower margins compared to peers.
InvestingPro Insights
As Foot Locker (NYSE:FL) navigates the competitive retail landscape, real-time data from InvestingPro provides a clearer picture of the company's current financial status. With a market capitalization of $3.12 billion, Foot Locker's adjusted P/E ratio over the last twelve months stands at a challenging 48.98, reflecting investor skepticism about future earnings growth. However, the company's revenue of $8.116 billion, despite a slight decline of 4.65% over the last twelve months, indicates a substantial market presence.
InvestingPro Tips suggest cautious optimism. Analysts have revised their earnings upwards for the upcoming period, indicating potential improvement in financial performance. Moreover, the company's strong return over the last year, with a 101.93% increase, may catch the eye of growth-focused investors. It's worth noting that while the company is not profitable over the last twelve months, analysts predict it will be profitable this year.
For investors considering Foot Locker's stock, these metrics and additional insights are available on InvestingPro. There are 11 more InvestingPro Tips listed, providing a comprehensive analysis to help make informed decisions.
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