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Foot Locker Has Limited Downside

Mar. 06, 2020 8:32 PM ETFoot Locker, Inc. (FL)10 Comments
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  • Shares have failed to gain traction since their Q4 beat.
  • We like what we see coming down the track.
  • We may look at getting long here on elevated volatility.
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We wrote about Foot Locker (NYSE:FL) back in January and stated that the firm's dividend was being helped by its growing earnings. Despite earnings beat in the fourth quarter by a full $0.05 per share, Foot Locker's share price has been in free-fall over the past week or so.

The share price currently stands at just over $30 a share, which means shares are trading with:

  1. Earnings multiple of 6.7
  2. Cash flow multiple of 4.4
  3. Book multiple of 1.3
  4. Sales multiple of 0.4

All of the above metrics (including the dividend where the yield has spiked above 5%) are far more attractive than the value averages we see in this industry. Furthermore, Foot Locker's 5-year average, when it comes to its dividend, comes at a mere 2.3%. Suffice it to say, these are exactly the type of setups we like to see with our potential value plays.

On the fourth quarter earnings call with CEO, Dick Johnson, it was encouraging to see how the firm's long-term vision is currently being played out. Johnson spoke of how the firm's membership program (FLX) is being rolled out at present in international markets. Generous loyalty programs through mobile and digital platforms should enable Foot Locker increase the amount of profit it makes from its regular customers. We will be looking to see how well FLX is doing in the US in the upcoming quarters, for example, this year.

Foot Locker is also, at present, rolling out its new-look website internationally but, more importantly, will open around 20 more Power Stores in 2020 in both the US and international markets. The key here is to make these stores as productive as possible to ensure that every square foot of the stores is being properly utilized by the firm.

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Analyst’s Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in FL over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Comments (10)

I'm guessing FL bottoms in the $18-20 range.
InvestTerm profile picture
I’m accumulating but I also know retail can get way worse before it gets better. I like FL as a long term cash flow beast. Though I’m not rushing all the way in...the US is going to get way worse with corona cases and people are going to quit going to stores for a while. Dry powder is going to be important for the next couple of quarters
InvestTerm profile picture
Whew....limited downside looking pretty unlimited lol.

I’m still clipping shares on the way down because I know covid will pass and when it does people will be eager to get back out shopping. But wow it’s painful right here, ouch.
pemdas1 profile picture
I wonder about their supply chain. Surely most of their product is made in Asia. What if they don't have the product to sell?
T3SLA profile picture
People keep jumping to some inconceivable endpoint where global production of everything stops. Have you stopped to think what that world actually looks like? Empty Walmart shelves? Empty mall stores? No products on any shelves anywhere? Global famine... probably 4 billion people dead from starvation? Wouldn't it be easier for a manufacturer in China to just keep manufacturing instead of going out of business? Easier to let the entire world get Corona virus and have 1%-2% die, just like they do from the seasonal flu, than to cause a much bigger problem shutting down the global economy...
Federico Cuneo profile picture
I would like to know what the author means by “some long deltas to work”. I believe buying some out of the money calls?

Anyway, at this price FL is an Investment, it is not speculation as many other stocks. You have a good dividend+stock buybacks + almost no debts and a very low P/S and P/B values. People will continue to buy snickers and young kids love the brand.
Old Professor profile picture
"Foot Locker Has Limited Downside."

Well, yes. There's not that much farther to fall. At $30.33, it's so close to the ground now. Foot Lockers had been a $78 stock not that long ago.
My brother you might see $25 in a few days but stay Storng
today lol
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