Argus Initiates Buy Rating, $88 Price Target On Foot Locker

• Foot Locker, Inc. FL shares have lost 2 percent since September 8, after climbing for the first nine months of the year.
• Argus’ John Staszak initiated coverage of the company with a Buy rating and a price target of $88.
• The company has been generating consistent growth, and is now poised to benefit from several factors like robust demand, Staszak said.

Analyst John Staszak mentioned that Foot Locker is a leading retailer of athletic shoes and apparel, is well-managed company and has a record of consistent growth. The company has generated a revenue CAGR of 9 percent over the past five years, net income growth of 32 percent, adjusted EPS growth of 34 percent and EBIT margin expansion from 5.4 percent to 11.4 percent.

Staszak expects several factors to boost the company's earnings. The recent growth in the sales of higher-priced merchandise points towards solid demand for footwear and apparel. “Foot Locker has also had relatively few markdowns and has been able to leverage its occupancy costs through higher sales per square foot, benefiting margins,” he added.

Foot Locker beat expectations for the fourth consecutive quarter, when it reported its F2Q results on August 21. The company has reported better-than-expected results in 10 of the last 12 quarters.

The analyst projected net sales of $7.4 billion for FY16. He expects the figure to driven by 6.1 percent same-store sales growth. Staszak expressed optimism regarding the company’s revenue growth, citing robust demand for basketball and casual running shoes and better apparel selections.

Foot Locker aims at opening 50-60 new stores this year and to remodel additional locations. Staszak projected the company’s operating margin to improve 90 basis points to 12.3 percent in FY16, helped by careful inventory management. He also expects Foot Locker to increase share repurchases to $1 billion, boosting EPS over the next couple of years.

In the report Argus noted, “The stock's valuation multiples are in the lower half of the industry range; we think they should be higher.”