Citigroup Analyst: Beaten Down Foot Locker Ripe For Buying

| About: Foot Locker, (FL)

Foot Locker Inc. (NYSE:FL) joins a growing list of beaten down stocks that are ripe for the picking, says Citigroup Global Markets analyst Kate McShane.

She upgraded the sport retailer from "hold" to "buy," based in no small part on the investment rationale of the moment: a strong balance sheet. 

Ms. McShane wrote in a note to clients:

With ongoing tumult in the financial markets, the deepening concern over the holiday retail season, and weaker consumer spending into ‘09; balance sheet strength & liquidity access appear to have become significantly more important investment considerations.  Foot Locker has 5% debt to capital, cash of ~8% of revenues as of Q2, & no upcoming liquidity expirations.

The analyst also told clients that Foot Locker will likely expand margins from trough levels in fiscal 2008 due to lower promotional activity and tighter inventory controls. Meanwhile, same store sales, while expected to drop slightly due to the challenging retail environment, will also easily outpace year-over-year comparables over the next two quarters, she added.

Add in a stock that has dropped 30% this past month to trade presently at a 10% discount to its three-year average price/earnings multiple, and Ms. McShane likes what she sees.  

"Over the longer term, we think Foot Locker is well positioned to capitalize on a healthier consumer & a technical athletic footwear trend," she said, maintaining her fiscal 2009 and fiscal 2010 earnings per share  estimates of US83¢ and US$1, and our US$17 target price.