Analysts: Finish Line Rebounds From Q2 Basketball Trouble

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Finish Line Inc FINL shares are down more than 9 percent in the past three months, but the company's business is in recovery mode, a couple of analysts said Monday.

The athletic shoe retailer's shares plunged in September after it failed to anticipate a shift in consumer preferences for basketball shoe brands to Nike from Jordan.

But the Jordan brand is on the rebound recently and the company's core running shoe category continues to grow, according to Deutsche Bank's Paul Trussell, who predicts 21 percent earnings growth for Finish Line in the year ahead.

"It was just a hiccup," Morgan Stanley's Jay Sole said. "The stock has room to move higher on good news."

Trussell maintained a Buy rating and $32 target on Finish Line, which is set to post third-quarter earnings Friday.

Sole maintained an Equal-Weight rating and $31 target.

Finish Line traded recently p 1.5 percent Monday morning, but was recently unchanged from Friday's close of $28.32.

Sole said if Finish Line beats earnings the stock should gain 7 percent. In the "lower probability" case that it posts a miss, "it will imply fundamental problems and cause a significant drop," Sole said.

Trussell expects Finish Line will post same-store sales growth of 4 percent, compared with 2.4 percent in the second quarter.

Clearing out inventory from its second-quarter basketball brand error will result in narrower profit margin, but "top line strength will outweigh margin concerns," Trussell said.

Moreover, with basketball woes mostly in the rear-view mirror, Trussell sees margins recovering in future quarters, along with robust same-store sales.

Finish Line's relatively low stock price relative to its earnings prospects is "unwarranted," Trussell said.

Analysts on average expect third-quarter earnings of $0.02 per share, on sales of $391 million.

In the company's second-quarter ended August 30, earnings were $0.54 on sales of $466.9 million.

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Posted In: Analyst ColorReiterationAnalyst RatingsDeutsche BankJay SoleMorgan StanleyPaul Trussell
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