I wasn’t expecting to write an article on Foot Locker (NYSE:FL) after the Q3 earnings results. I was already long Foot Locker and I view the company as a great long-term hold. Many other SeekingAlpha contributors seem to agree as almost all articles on FL have been bullish. Not that I necessarily want to follow the consensus view, but it seems that Mr. Market just does not want to turn positive on Foot Locker.
Most of the other articles about Foot Locker have focused on its excellent balance sheet and cash flow generation. I will discuss this briefly as well but not in great detail. These points have been convincingly hammered home by the other contributors. In this article I want to assess why Foot Locker is valued low by the market and why I belief it should be valued a lot higher.
However, first I will discuss FL’s financial position and Q3 results in short. Secondly, I will discuss a perceived risk for Foot Locker that I think is overstated and can actually help the company in the long-term. Thirdly, I will discuss Foot Locker’s management, who I regard as one of the big positives for the company. Lastly, I will provide a rough estimate of what I think the business is worth and why investors will likely fair well if they hold Foot Locker for years to come.
Q3 and Financial Position
Last Friday Foot Locker released its third quarter results. Margins were up, comparable sales rose 5.7% and the company had EPS of $1.13, adjusted for a 4 million gain on a lease. In today’s retail environment many brick and mortar retailers would cut of their hand for such results. To my surprise Foot Locker shares sold of more than 8% in the first hour of trading on a Friday. I doubled my position in the
