Why Foot Locker Hopefuls Have a Case - Goldman Sachs Initiates with a Buy Rating
After being a quite vulnerable business during the coronavirus pandemic, Foot Locker (NYSE:FL) seeks to regain traction in the Consumer & Retail space. They’ve realized some success in the last fiscal quarter, resulting in investment bank Goldman Sachs initiating the coverage of the athletic-footwear company with a Buy rating and $38 price target on Tuesday morning.
Though brick & mortar stores have realized an unprecedented amount of difficulty throughout 2020, Goldman Sachs believes that Foot Locker is in a position to consolidate market share in the midst of “competitor bankruptcies and department store closures.” That being said, Foot Locker is far from immune to the strong tailwinds of ecommerce. And as we’ve seen choppy performance month-to-month, they need to tap into their significant vendor and consumer relationships to right the ship.
Brand loyalty is of paramount importance (especially at a time like this), and Foot Locker needs to capitalize on their link to consumers. Equally as important though, are the footwear company’s ability to leverage relationships with key brands in Nike/Adidas, and “bargaining power with landlords and other cost centers,” according to Goldman Sachs.
However, Foot Locker has had sparks in the last few weeks that should keep investors hopeful throughout the year. Basketball, which is Foot Locker’s main catalyst for sales, has picked up and taken over the sports world with the playoffs. This return, coupled with “solid consumer trend tailwinds,” should set up an “attractive product cycle,” according to Goldman Sachs.
All in all, though we’re still ambivalent about this stock, we see the potential and financial upside that the analysts are referring to in the New York-based company. For one, FL already trades “at a discount to key specialty retailers,” and Goldman’s EPS estimates are in fact 19%/7% ahead of Factset consensus in FY20/21.
Disclosure: At the time of publication, we have no positions in any of the securities mentioned in this article. We wrote this article ourselves, and it expresses our own opinions. We are not receiving compensation for creating this article (other than from TheStreet) and have no business relationship with any company whose stock is mentioned in this article.