3 Reasons Foot Locker, Inc. (FL) Stock Is a No-Brainer Buy

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Leading sportswear chain Foot Locker, Inc. (NYSE:FL) reported fourth-quarter earnings on Friday. FL stock is charging following a top-line beat and a bottom-line match.

3 Reasons Foot Locker, Inc. (FL) Is a No-Brainer Buy Ahead of Earnings

Foot Locker joins the 66% of S&P 500 companies have beaten Wall Street’s expectations for their fourth-quarter earnings, with the blending growth rate coming to 4.6%. That means the fourth quarter will mark the first time the index has seen year-over-year growth in earnings since early 2015.

As of its last report, the company had just shy of 3,400 stores in 23 countries, with Foot Locker U.S. making up nearly 1,000 of those.

Since the depths of the recession, Foot Locker stock has posted a relatively consistent recovery. It hit a bump in late 2015, regained those losses in 2016, and has been flat so far this year. I believe the most recent cool-off was serving as the base for another run in FL, which will be sparked by today’s fantastic earnings report.

Here are three specific reasons why.

FL Stock By the Numbers

Favorable earnings: For the fourth quarter, analysts expected earnings of $1.32 per share vs. just $1.16 a year ago. Earnings actually came to $1.37, which represents 18% growth. Looking forward, double-digit earnings growth is on tap for next quarter and each of the next two full years, while FL expected to be just shy of that for its five-year average.

Foot Locker has beaten expectations in each of the past three quarters and is posting consistent sales and same-store sales growth of around 5%, including another 5% gain this quarter.

Fundamentals: Foot Locker’s cash is nearly 7 times its debt, while its return on equity and assets are 24% and 17%, respectively. That cash should help ensure Foot Locker keeps rewarding loyal investors with a dividend. At current levels, FL stock sports a forward yield of 1.7%. That’s not too shabby, considering this pick offers substantial earnings growth too.

Recovering retail sales: Clothing and footwear spending has seen quarter-over-quarter growth for the last eight periods reported by the Bureau of Economic Analysis, which cannot be said for the overall category of non-durable goods. Meanwhile, January saw a 0.7% monthly jump in core retail sales, with spending at sporting goods, electronics and department stores all gaining — a contrast to December’s dip.

While those numbers won’t be reflected in tomorrow’s report, they bode well for the company’s overall prospects. In fact, looking forward, retail sales (excluding gasoline) for the year are expected to rise nearly 4% — more than the growth rate last year — driven by merchandise purchasing.

Bottom Line on FL Stock

Given these solid fundamentals and spending trends, it’s surprising that Foot Locker stock has been flat so far this year. I believe shares of FL have room to run.

The market has gained 6%, and there’s no reason Foot Locker shouldn’t be moving with it. Right now, FL stock is trading for just 13 times forward earnings.

Considering it has double-digit earnings growth on tap, plus a nearly 2% dividend, this stock is a great deal.

Hilary Kramer is the editor of GameChangersBreakout StocksHigh Octane Trader, Absolute Capital Return and Value Authority. She is an accomplished investment specialist and market strategist with more than 25 years of experience in portfolio management, equity research, trading, and risk management. She has extensive expertise in global financial management, asset allocation, investment banking and private equity ventures, and is regularly sought after to provide her analysis on Bloomberg, CNBC, Fox Business Network and other media.


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