Foot Locker (FL) Scores High on 4 Parameters: Time to Buy

Lower gasoline prices, an improving labor market and positive consumer sentiment are enough to drive momentum in the retail space. Thus, it would be feasible on your part to add a few retail stocks to your portfolio that have solid fundamentals and could provide a sound investment opportunity. Here we have highlighted one such stock – Foot Locker, Inc. FL – that looks promising and holds a Zacks Rank #2 (Buy), with a long-term earnings growth rate of 12.3%. We have analyzed a few basic aspects of the stock that has surged 17% in a year.

Sturdy Fundamentals Underscore Potential

The company’s stellar performance is backed by effective implementation of its operational and financial initiatives. Management believes that by continually exploiting opportunities like children’s business, shop-in-shop expansion in collaboration with its vendors, store banner.com business, store refurbishment and enhancement of assortments, the company can benefit in the long run. International expansion, especially in Europe, is another growth catalyst. The company is also focused on augmenting its E-commerce platform, growing direct-to-consumer operations, margin expansion and tapping underpenetrated markets.

Positive Earnings Surprise History

Foot Locker appears compelling from the earnings perspective, as it continued with its positive earnings surprise streak for the ninth straight quarter. In the trailing four quarters, Foot Locker outperformed the Zacks Consensus Estimate by an average of 11.2%, including a positive surprise of 6.4% in the last concluded quarter.

Solid comparable-store sales growth and cost-containment efforts helped the company to post better-than-expected third-quarter fiscal 2015 results, wherein its earnings of $1.00 per share surpassed the Zacks Consensus Estimate of 94 cents and surged 20% from 83 cents earned in the prior-year quarter. Total sales also increased 3.6% year over year to $1,794 million and outpaced the Zacks Consensus Estimate of $1,782 million. Management now expects to attain double-digit growth in earnings per share in the final quarter.

Favorable Estimate Revisions

Following Foot Locker’s sturdy performance and encouraging outlook, the Zacks Consensus Estimate witnessed an uptrend as analysts raised their estimates. Analysts polled by Zacks are convinced about the stock’s upbeat performance in the future. Over the past 60 days, the Zacks Consensus Estimate of $4.26 and $4.73 for fiscal 2015 and fiscal 2016 has jumped 6 cents and 2 cents, respectively. Clearly, a positive sentiment is palpable among analysts covering the stock.

Value Score

Investment in stocks made on the basis of a diligent value analysis is usually considered to be one of the best practices. However, it might be difficult for one to look at each parameter and compare with the peer group for an analysis on whether the stock is attractive from the value perspective. To make the task easy, Zacks has designed the new Style Score System.

The attractiveness of Foot Locker as an investment option is confirmed by its Value Style Score of “B”. The Value Style Score condenses all valuation metrics into one actionable score that helps investors steer clear of ‘value traps’ and identify stocks that are truly trading at a discount. Our research shows that stocks with Style Scores of “A” or “B” when combined with a Zacks Rank #1 (Strong Buy) or #2 offer the best upside potential.

Stocks to Consider

Investors interested in the retail space may consider other favorably ranked stocks such as Abercrombie & Fitch Co. ANF and Express Inc. EXPR, both sporting a Zacks Rank #1, and American Eagle Outfitters, Inc. AEO, carrying a Zacks Rank #2.

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