Key points
- Foot Locker shares are marching north again after a post-earnings decline earlier this month.
- This week’s new update suggests that we could see further gains in the near term.
- It remains a volatile stock, but there’s a strong argument to be made that most of the downside is already in place.
- 5 titles we prefer to Foot Locker
Sometimes, you just can’t keep good supplies. Foot Locker, Inc. NYSE:FL, whose investors often feel like they’re on a non-stop roller coaster, is starting to rise again. It had a solid couple of months through early March, gaining 140% from last August’s multi-year low.
To give an example, at the time Footlocker shares, which had briefly dropped below $16, had returned to their 2010 levels: so it’s clearly still in recovery mode. But with a triple-digit gain under its belt, it stands to reason that investors might think that 2024 could be the year of some solid gains, unhampered by sudden drops.
Post-earnings slide
It wasn’t supposed to be this way. Just two weeks ago, Foot Locker’s fourth-quarter results sent shares plunging more than 30% in a single session. This was a bitter pill for investors to swallow, as the company managed to soundly beat analysts’ expectations in terms of earnings and revenue. And from a macro perspective, stocks, in general, have continued to make successive highs.
But weaker-than-expected forward guidance from management spooked investors. This was understandable considering how hard the company had to work to convince them that a comeback is underway. However, it’s starting to look like the post-earnings decline may have been an overreaction, and the 30% gain over the past two weeks is the start of another rally.
New update for analysts
That, at least, was the thinking of the Evercore ISI team, which earlier this week raised its rating on Foot Locker stock from In Line to Outperform. The team conducted an analysis, the results of which suggest that the negative effects caused by large liquidation inventories on the company’s activities over the past year were initially underestimated. However, following an aggressive clearance during the final quarter of 2023, Foot Locker is once again trying to meet demand.
Additionally, Evercore also saw its confidence increase regarding a same-store sales recovery in the second half, incorporated into its guidance for the current fiscal year. This, in turn, led them to increase their full-year 2024 EPS estimate from $1.70 to $1.75 and their full-year 2025 estimate from $2.35 to $2.40 . Their new $32 price target now points to around 12% in further earnings, with the potential for much more if this quarter’s numbers manage to impress.
As always with Foot Locker, investors should exercise a degree of caution as it tends to move much more than its competitors. But for investors with the appropriate level of risk tolerance, that’s probably what makes it attractive.
Getting involved
Beyond Evercore’s upgrade, the Citi team felt momentum was shifting to the bulls and upgraded their rating on Foot Locker stock late last week. While they stopped short of raising the stock to a full buy rating, they were confident enough that most of the downside was already built into the stock price to remove their sell rating.
With the stock continuing to gain throughout the week so far, investors should look for more bullish updates in the coming weeks. Technically, the stock needs to close above last month’s high of $35 to reconfirm that the uptrend is intact, and that will require further gains in the 25% region. The continuing disappointment of Nike Inc. NYSE: DI AND Lululemon Athletica Inc. NASDAQ: LULU won’t help, as sentiment towards the sporting goods retail industry as a whole is weak. But if there’s one stock that can cover this kind of ground in short order, it’s Foot Locker.
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