Goldman Upgrades Finish Line, Removes From Americas Sell List

• Finish Line Inc FINL shares are down 22 percent year-to-date, plunging from above $28 in mid-August to below $19 in end-September.
• Goldman Sachs' Taposh Bari upgraded the rating on the company from Sell to Neutral, while setting a price target of $20.
• Despite expectations of EPS declines in FY17 and FY18, the stock has been upgraded following two years of underperformance, Bari said.

Since October 1 2013, Finish Line’s shares have declined by 24 percent, versus a 13 percent appreciation in the S&P 500 and the RLX gaining 37 percent. The company’s shares have also lagged the shares of its largest competitor Foot Locker, Inc. FL, which is up 109 percent, and its key vendor Nike Inc NKE, which has appreciated 71 percent.

Analyst Taposh Bari commented, “We remain guarded on the outlook for FINL, modeling slight EPS declines in FY17 and FY18,” while adding that the company’s share price already reflects “more negative revisions.”

In the report Goldman Sachs noted, “We had been cautious on FINL in the face of strong North America growth at Nike, which accounts for 73% of FINL sales. We took the view that not all of Nike’s retailers are equal, and that changes in fashion and competition would lead to eroding economics at FINL.”

Bari also expressed concern over Finish Line’s inconsistent execution, margin dilutive investments in Macy’s and Running Specialty, a shift in the fashion industry away from retro and performance footwear towards casual athletic styles, and stiffening competition for athletic retail.

“While we continue to see risks to the premium athletic footwear channel, which has benefited from an unprecedented (6-year long) product cycle, we now see greater downside risk to FL given valuation,” Bari elaborated.