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Foot Locker: 50% Upside Potential

Stock MarketsSep 19, 2021 08:30AM ET
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© Reuters. Foot Locker: 50% Upside Potential

Wall Street is underestimating Foot Locker’s (FL) growth potential in the new athletic retail apparel landscape, according to Quo Vadis President John Zolidis. He sees the company trading 50 percent higher in twelve months from now. I am bullish on this stock.

“The Street is underestimating the benefits from changes in Nike (NYSE:NKE) distribution and the environment post-Covid, and therefore estimates are too low,” he says. “We see upward revisions driving valuation expansion with a potential 50% gain over one year.”

Last month, Foot Locker (NYSE:FL) reported a net income of $430 million, or $4.09 per share, for the 13 weeks ended July 31, 2021. That’s a significant improvement from a year earlier when the company reported $45 million, or $0.43 per share.

TipRanks assigns a Smart Score of 8 to Foot Locker’s stock, citing strong fundamentals and technicals, and increased hedge fund activity. (See Foot Locker stock charts on TipRanks)

Great Nike Potential

What’s Wall Street missing about Foot Locker’s potential? A couple of things, according to Zolidis.

First is its relationship with Nike (NKE) after the athletic apparel giant announced a shift from an indirect (wholesale) model to a direct sales model. “Foot Locker bears believe this strategy means Nike plans a ‘Last Dance’ with Foot Locker and will pull product and demand more margin,” he says.

Zolidis thinks the opposite is the case. While Nike shanked its overall wholesale sales, its relationship with Foot Locker deepened, with estimated sales of Nike products rising 28%.

Meanwhile, Nike severed its relationship with several retailers, including DSW, Belks, Urban Outfitters (NASDAQ:URBN), Dillard’s (DDS), Shoe Show, Zappos, Big Five Sporting Goods, Bob’s Stores, Dunham’s Sports, Fred Meyer, Olympia Sports, EbLens, VIM City Blue, and even mighty Amazon.com (NASDAQ:AMZN).

While Nike cut off these retailers from its distribution network, scores of other retailers are no longer in business to sell Nike products. That includes Sports Authority, Modell’s 2020, and MC Sports, to mention but a few.

Simply put, Foot Locker maybe turning into the sole Nike distributor standing.

The second matter Wall Street is missing about Foot Locker’s prospects, according to Zolidis, is the change in the business environment in the post-pandemic world. “We believe investors are underestimating the effects of rationalization in the industry and post-Covid demand and the growing consumer interest in athletic activity,” he says.

Still, there’s valuation. Zolidis thinks Foot Locker will earn north of $8 per share, and perhaps more if his expectations about the rising demand for athletic apparel in the post-COVID world materialize.

Wall Street Weighs In

Though not as bullish, the analyst community is on the same side as Zolidis. They rate Foot Locker a Moderate Buy, with an average Foot Locker price target of $74.00, with a high forecast of $90.00 and a low forecast of $60.00. The average price target represents a 49.1% change from the last price of $49.63.

Conclusion

The bottom line: Foot Locker’s relationship with Nike has grown stronger, not weaker, after Nike changed its distribution model, as several retailers have vanished. If that turns out to be the case, the athletic apparel retailer is well-position to thrive in the post-COVID-19 world, rewarding its stockholders handsomely.

Disclosure: At the time of publication, Panos Mourdoukousas had a position in the securities mentioned in this article.

Disclaimer: The information contained in this article represents the views and opinion of the writer only, and not the views or opinion of Tipranks or its affiliates, and should be considered for informational purposes only. Tipranks makes no warranties about the completeness, accuracy or reliability of such information. Nothing in this article should be taken as a recommendation or solicitation to purchase or sell securities. Nothing in the article constitutes legal, professional, investment and/or financial advice and/or takes into account the specific needs and/or requirements of an individual, nor does any information in the article constitute a comprehensive or complete statement of the matters or subject discussed therein. Tipranks and its affiliates disclaim all liability or responsibility with respect to the content of the article, and any action taken upon the information in the article is at your own and sole risk. The link to this article does not constitute an endorsement or recommendation by Tipranks or its affiliates. Past performance is not indicative of future results, prices or performance.

Foot Locker: 50% Upside Potential
 

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John Snowden
John Snowden Sep 19, 2021 9:41AM ET
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