Morgan Stanley: Finish Line Is Rangebound

Shares of Finish Line Inc FINL continued to surge on Monday, following the company's better-than-expected results announced last week.

In an equity research report, Morgan Stanley analysts Jay Sole and Joseph Wyatt rated the company stock an Equal-Weight and with a price target of $26.50.

Related Link: Why Finish Line Has 'More Legs To Run'

Despite beating expectations, Finish Line provided fiscal 2016 EPS guidance below the Street’s estimate. Sole and Wyatt believe this has to do with the company losing market share to Foot Locker, Inc. FL.

However, they also think that the plan to increase store remodel capex (mostly allocated to expanding the Nike Track Club shop-in-shops within some of its stores) is “a good step toward reversing the trend.”

Moreover, they think the company needs to further boost this capex, and expect a rangebound stock.

According to the report, Finish Line’s 14x P/E seems “slow in an industry where the median multiple is 19x.”

“...we think FINL needs an earnings catalyst to get out of the penalty box, and we see limited EPS upside until 2HCY15 at the earliest. Store remodels likely don't impact sales until next year and we think FINL will have to increase its Nike Track Club investment before it noticeably improves earnings,” stated the analysts.

As a result of the poor guidance, Morgan Stanley lowered its EPS estimate for fiscal 2016 to $1.76. The $26.50 price target is based on 13.5x its $1.95 fiscal 2017 EPS estimate.