This analysis sets out to analyze the FL Stock and their underlying business in order to determine if it is a good buy. This analysis will include a range of information about the FL stock, a FL Stock valuation, and my FL Stock price target.
FL Stock Overview:
$FL — Foot Locker Corp. is an athletic footwear and apparel retailer in USA, Canada, Europe, Australia, New Zealand, and Asia. Foot Locker operates under the Foot Locker, Kids Foot Locker, Champs Sports, Eastbay, Runners Point, Footaction, and Sidestep brands, selling shoes, apparel, equipment, and licensed merchandise to their customers worldwide. Foot Locker operates approximately 3,000 stores worldwide, as well as various eCommerce platforms and mobile apps.
FL Stock Recent News:
On November 1 st, 2021, Foot Locker announced the closing of their acquisition of Atmos for $360M. Atmos is a footwear retailer in Japan with 39 Japanese based stores and 10 international stores, furthermore, Atmos has an eCommerce platform that makes up most of their sales. The acquisition is great for Foot Locker as they continue to expand their business in Asian and Japanese markets.
Atmos is a popular brand among sneakerheads worldwide and have been a part of some of the biggest shoe collaborations in the world, including their “Animal Pack 2.0” and “Elephant” collaboration with the Nike Dunk and Nike Air Max silhouettes.
Foot Locker expects Atmos to achieve low double digit sales growth for the foreseeable future.
Another addition to this acquisition was Eurostar, who is an athletic footwear and apparel brand/retailer in Europe. Footlocker is acquiring Atmos and Eurostar for $1.1B, and they are expected to increase footlockers EPS by $0.44-$0.48 next fiscal year. This assumes that both companies will bring in between $44–48M in Net Income (after tax). This implies between a 23–25 EV/EBITDA (not really EBITDA because it is net income after tax, interest, and depreciation, but for the sake of this argument we will us EBITDA), which is low for the footwear industry, as their average EBITDA multiple is 33.75x. This implies that Foot Locker got a good deal on their acquisitions.
FL Stock Management Team:
This sectioned is designed to give you (the reader) insight into the background of the highest (executive) managers/officers at Asbury. The following people are listed as the highest-ranking members of the Foot Locker Management Team.
Richard Johnson (CEO): Richard has been with Foot Locker since 1993, assuming titles of increasing importance from VP of Merchandising at EastBay (a subsidiary of Foot Locker) all the way to CEO of Foot Locker. Before joining Foot Locker, Richard worked for Graebel Van Lines, General Motors, Electronic Data systems and Wausau Insurance.
Giovanna Cipriano (CAO): Giovanna joined the Foot Locker team in 1996 and has been climbing the ranks ever since. Giovanna oversees the company’s global accounting operationists reporting/compliance, and taxation of the business.
Robert McHugh (Executive VP of Operations): Robert has served as Foot Lockers EVP of Operation since 2011. Prior to this he served as Foot Lockers CFO from 2005 to 2011, and prior to that he was the CAO from 2000 to 2005. As you can see, Robert has a vast amount of experience in the highest management positions in Foot Locker and is more than qualifies to be EVP of operations.
As you can see, Foot Locker’s highest level management officers all have vast experience in management positions both internally and at other organizations. I believe that each member of their board has the necessary experience in order to succeed in their roles.
FL Stock Competition:
In order to undergo the comparable analysis, we need to get an idea of other public companies that have stocks that rival FL stock. These competitors must operate in the same space, operate in similar geographies, be of similar market cap, and have valid financial ratios. Using this criterion, I came up with the following.
- $HIBB — Hibbett Inc:Hibbett Sports retails athletic-inspired fashion products in small and mid-sized communities in the United States. Its stores offer a range of merchandise, including athletic footwear, athletic and fashion apparel, team sports equipment, and related accessories. Currently, there are 1,067 Hibbett retail stores, which include 882 Hibbett Sports stores, 167 City Gear stores, and 18 Sports Additions athletic shoe stores. It also sells its products through online
- $ANF — Abercrombie & Fitch Co: Abercrombie & Fitch is a specialty retailer that operates in North America, Europe, Asia, and the Middle East. Abercrombie & Fitch is the parent company to the following brands: Abercrombie & Fitch, Abercrombie Kids, Hollister, Gilly Hicks, and Social Tourist.
- $GCO — Genesco Inc: Genesco is a retailer and wholesaler of footwear, apparel, and accessories. Their Journeys Group segment offers footwear and accessories through the Journeys, Journeys Kidz, and Little Burgundy retail/online chains. Their Schuh Group segment operates Schuh retail footwear stores that offer casual and athletic footwear, as well as sells footwear through e-commerce. Their Johnston & Murphy Group segment is involved in the retail, and e-commerce distribution of footwear, apparel, and accessories. Their Licensed Brands segment markets footwear under the Levi’s, Dockers, and G.H. Bass brands.
- $GES — Guess Inc:Guess? Inc. designs, markets, distributes, and licenses lifestyle collections of apparel and accessories. The company’s clothing collection includes jeans, pants, skirts, dresses, shorts, blouses, shirts, jackets, knitwear, and intimate apparel. It also designs/distributes other products, such as eyewear, watches, handbags, footwear, kids’ and infants’ apparel, outerwear, fragrance, jewelry, and other fashion accessories, as well as to certain wholesale partners to operate and sell products through licensed retail stores.
FL Stock Financial Information:
- Q3 2021 Financial Performance (Good): In Q3 2021 (vs Q3 2020), Foot Locker was able to grow their revenues by 4%, reduce their cost of sales by 2%, increased their gross margins to 34.7% from 30.9%, and increased their income from operations by 10%.
- Q3 2021 Financial Performance (Bad): In Q3 2021, Foot Locker’s seemed to have a great performance, however, their net income decreased by 40%, and their EPS decreased by 40% as well These 2 metrics are very important and give a better indication of their financial performance.
FL Stock Investment Valuation:
Comparable Analyses:
By comparing Foot Locker financial ratios to that of their publicly listed competition (listed above in the “competitors” section) I found the following:
P/S Ratio:
Based off of Foot Locker’s P/S Ratio in comparison to their competitors, $FL stock price target based off of P/S is $41.85/share, which would imply a share price decrease of 1%.
P/B Ratio:
Foot Locker’s P/E ratio (compared to their counterparts) indicates that the FL stock price target is $57.17/share, which would imply an upside of 35% in order to reach their fair value.
EV/EBITDA Ratio:
Foot Locker’s EV/Revenue ratio indicates that the FL stock price target is $50/share, which would translate into a potential upside of 18%
Comparable Valuation:
Due to the fluctuation between comparable analyses, I decided to take average the 3 comparable results. By doing this the overall FL stock price target is $49.67/share, which implies an upside potential of 17.7%.
DCF Model:
I also underwent a DCF analysis as part of my valuation process. By inputting the relevant data into my model, I arrived at a fair value of $FL stock of $45/share, implying a share price increase of 7%.
Overall Valuation:
My overall price target for $FL stock is $47.33/share which implies that they are undervalued and can grow up to 12% before they reach their fair value.
FL Price Prediction & Plan:
My plan for an investment in the $FL stock would go as follows:
- Enter into a position below fair value near their lowest comparable (P/S) of $41.85/share. This makes us certain that we are buying $FL stock at/below fair value.
- Hold long-term and re-evaluate the position as new data is released (especially their financial reports to see if they continue their growth, or if their growth starts to fall short of expectations).
Originally published at https://utradea.com.
