Thursday, 7 February 2013

Buy Foot Locker But Hold Finish Line, Says Baird

Analysts at RW Baird began coverage of footwear retailers Foot Locker (FL) and Finish Line (FINL) late yesterday, with a Buy rating for the former and a Neutral rating for the latter.

Both retailers are worth taking a close look at if for no reason other than this chart: The athletic specialty retailers (FINL and FL) have been the biggest beneficiaries in the recent cycle – we attribute their
outperformance to both the relative strength in footwear over apparel (footwear bigger mix at these retailers), and the general repositioning of the two companies (e.g., renewed focus on product, brands, inventories)…Given FL‟s leadership position in basketball, the company is in a strong position to benefit from the more recent strength in the category.

They set a $45 price target for Foot Locker, which today is up 1.5% to $34.66 a share:

    We’re optimistic that strong basketball shoe trends can drive upside to our forecasts. We’re also encouraged that FL’s women’s business can be resuscitated with a renewed focus on performance apparel, and we believe that Europe (despite the tough macro) still offers solid unit growth potential.

The picture isn’t quite as rosy for Finish Line, which is up 0.7% today to $18.47. Kummetz and Weyer set a $21 price target for the stock, but see obstacles:

    We’re concerned that weak running shoe trends will pressure FINL’s comp performance over the course of this cycle. We’re also waiting to see if/when the company’s new store prototype and revamped ecommerce site will begin paying dividends. We like Running Company and Macy’s as new sources of revenue, but they are currently contributing to margin pressure. In short, FINL is not an expensive stock, but currently lacks a significant catalyst.

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