Foot Locker, Inc. : Everything is bullish
Foot Locker is a leading global retailer of athletically inspired shoes and apparel. It operates in 23 countries in North America, Europe, Australia and New Zeeland. Its main competitor is Finish Line Inc. On May 18th, the company released its first quarter results. It was a strong Q1. The rate of surprise was 13%. EPS was estimated at USD 0.74. The actual one was USD 0.83.
Two years ago, CEO Hicks arrived and the company achieved most of its five-year goals. In 2016, he wants an EPS of USD 4.00. It is 2.2 times the annual actual EPS. This aim is reachable if the growth does not stop quickly. Furthermore, on the short term, Foot Locker can benefit a lot from the European Soccer Championships and the Summer Olympics Game in London.
However, there are various risks in the company’s business. The firm is hugely exposed to Europe : it has 28% of stores over there with some in Spain, Italy and Greece. Moreover, sales are highly correlated to Nike’s performance because 68% of the merchandise is purchased from the vendor. Besides, the footwear industry is competitive with various distributors and it has a fashion risk.
Fundamentally, Foot Locker’s valuation is in line with the industry. It has a yield of 2.41% and the operating margin is quite good. EPS and revenue revisions are always increased. Since December 2010, estimated EPS has doubled. The security seems growing and solid. A proof of it is the five stars rating of Superformance.
Technically, 20-days moving average is going to cross 50-days moving average. During the last month, there were two main gaps. The first one breaks the USD 29.9 support, which was tried several times. This support was cross again 10 days later and the gap was deeper. The second gap has never been filled, so it is a risk. The USD 29.9 support is strong because it was tried often in May and even at the beginning of June. The 20-days moving average serves as support. The security is trying to break the USD 32.4 weekly resistance. All moving averages (10, 20 and 50 weeks) are growing sharply.
Due to graphical analysis, investors can buy the stock immediately. A first target price is the USD 32.8 resistance. If this one is crossed, the second target price is USD 35. To avoid important losses, a stop loss will be fixed at USD 29.7.
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Valuation |
2014e |
2015e |
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PER (Price / EPS)
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12,7x |
11,4x |
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Capitalization / Revenue
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0,84x |
0,80x |
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EV / Revenue
|
0,71x |
0,65x |
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EV / EBITDA
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5,63x |
5,00x |
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Yield (DPS / Price)
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2,19% |
2,27% |
| Profitability |
2014e |
2015e |
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Operating Margin (EBIT / Sales)
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10,7% |
11,2% |
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operating laverage (Delta EBIT / Delta Sales)
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2,67x |
2,08x |
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Net Margin (Net Profit / Revenue)
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6,72% |
7,10% |
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ROA (Net Profit / Asset)
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12,5% |
12,8% |
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ROE (Net Profit / Equities)
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16,4% |
17,4% |
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Rate of Dividend
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27,8% |
26,0% |
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