Finish Line's Stock Price Running Beyond Barclays' Target

Barclays remains on the sidelines on Finish Line Inc FINL, despite the company reporting better-than-expected quarterly EPS and improved comps.

The brokerage reiterated its Equal-Weight rating on the stock and $18 price target on stretched valuation. Shares of Finish Line are trading above the price target at $22 levels.

For the second quarter, the company reported adjusted EPS of $0.53 versus Barclays' estimate of $0.52. Revenue rose 5.4 percent to $509.4 million, higher than Barclays' $494.1 million estimate, with a comp growing 5.1 percent.

Related Link: Buckingham Research Downgrades Finish Line To Neutral

Growth in basketball was driven by the retro Jordan and Curry shoes, particularly the strong launch of the Curry 2.5. Barclays expects the Curry franchise to continue its momentum with the launch of the Curry 3 later this quarter.

On the flip side, EBIT margin fell 170 bps to 6.9 percent (vs. Barclays' 7.0 percent estimate). Gross margin declined 170 bps to 31.3 percent on a 200bps dip in merchandise margin.

"Merchandise margin contraction was driven by higher markdowns as FL looked to clear its high inventory levels due to previous supply chain disruptions," analyst Matthew McClintock wrote in a note.

However, the analyst raised his FY17 and FY18 EPS to $1.55 and $1.75 from $1.50 and $1.65, respectively as he expects continued cost savings and control from the company's organizational restructure.

At time of writing, shares of Finish Line fell 2.02 percent to $22.29.

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