Key points
- Foot Locker shares are heading north after their decline following the earnings release earlier this month.
- This week’s new update suggests we could be looking at even bigger gains in the near term.
- This is a volatile stock, but there is a strong case that most of the downside is already priced in.
- 5 stocks we like better than Foot Locker
Sometimes you just can’t keep good inventory. Foot Locker, Inc. NYSE: FL, which investors often feel like they are on a non-stop roller coaster, is starting to recover again. This lasted a solid few months until the beginning of March, winning 140% since the multi-year low last August.
As a reminder, at the time, Footlocker stock, which had briefly fallen below $16, was trading back to 2010 levels – so it’s clearly still in recovery mode. But with a triple-digit gain under its belt, it makes sense that investors think 2024 could be the year of steady gains, unchecked by sudden declines.
Post-profit slide
It wasn’t meant to be. Just two weeks ago, Foot Locker’s Fourth-quarter results sent shares down more than 30% in a single session. It was a bitter pill to swallow for investors, as the company managed to far exceed analysts’ expectations for earnings and revenue. And from a macro perspective, stocks, in general, have continued to rise. high after high.
But weaker-than-expected guidance from management spooked investors. This was understandable given the company’s efforts to convince that a comeback was in the works. However, it appears the drop in earnings may have been an overreaction, and the 30% gain over the past two weeks marks the start of a new rally.
New Analyst Upgrade
At least that’s the thinking of the team at Evercore ISI, which earlier this week raised its rating on Foot Locker shares from In Line to Outperform. The team conducted an analysis whose results suggested that the negative effects caused by large liquidation inventories on the company’s operations throughout last year had initially been underestimated. However, after aggressive authorization in the final quarter of 2023, Foot Locker is once again scrambling to meet demand.
Additionally, Evercore also saw increased confidence regarding a recovery in same-store sales in the second half, incorporated into guidance for the current fiscal year. This, in turn, led them to increase their full-year 2024 EPS estimate from $1.70 to $1.75 and their full-year 2025 estimate from 2.35 $ to $2.40. Their new price target of $32 is now targeting around 12% more gains, with much greater potential if this quarter’s numbers can impress.
As always with Foot Locker, investors should exercise some caution as this one tends to move around a lot more than its peers. But for investors with an appropriate level of risk tolerance, that’s probably what makes it interesting.
To be involved
Beyond the Evercore upgrade, the Citi team sensed momentum shifting to the bulls and upgraded its rating on Foot Locker shares late last week. Even though they failed to upgrade the stock to a full buy rating, they were confident enough that most of the decline was already priced into the stock to remove their sell rating.
With the stock continuing to advance throughout the week so far, investors should look for more bullish updates in the coming weeks. Technically, the stock needs to close above last month’s high of $35 to confirm the uptrend is intact, which will require additional gains in the range of 25%. The persistent disappointment in Nike Inc. NYSE:NKE And Lululemon Athletica Inc. NASDAQ:LULU will not help, because the feeling towards the sports retail industry as a whole is weak. But if any stock can cover that kind of ground in a short amount of time, it’s Foot Locker.
Before you consider Foot Locker, you’ll want to hear this.
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If a company’s CEO, COO, and CFO all sold shares of their stock, would you want to know?