Finish Line 'Back In The Saddle Again,' Canaccord Upgrades Shares

In a report published Monday, Canaccord Genuity analyst Camilo Lyon upgraded the rating on

from Hold to Buy, while raising the price target from $26 to $33. The analyst believes that problems that plagued merchandise margins in 2014 are likely to have been resolved and Finish Line is likely to see faster than anticipated margin recovery. "Last year was fraught with margin-degrading markdowns from 1) RSG inventory clearance in 1Q/4Q, 2) basketball markdowns in 2Q/3Q, and 3) running markdowns in 3Q/4Q. These drags should all reverse this year, creating margin upside relative to consensus estimates," Lyon explained. In addition, Finish Line is expected to benefit from an improvement in the running product mix, which now matches the casual demand trends more closely. The company is also expected to benefit from higher allocation of key basketball styles. The earnings recovery is also likely to be driven by Finish Line's efforts to improve profitability at

, combined with a tightly controlled expense structure. Also, the analyst believes that Finish Line is close to completing its clearance activity, which is likely to be closed in early 3Q15. The EPS estimate for 2015 has, therefore been raised from $1.74 to $1.88.