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Foot Locker: Argus Research Downgraded It to 'Hold'

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Foot Locker: Argus Research Downgraded It to 'Hold' PART 1 OF 3

Foot Locker: Argus Research Downgraded It to ‘Hold’

Foot Locker downgraded by Argus Research

On June 12, 2017, Argus Research downgraded Foot Locker (FL) to a “hold” from a “buy” rating due to its deteriorating outlook and heavy reliance on Nike (NKE).

“We are lowering our rating on Foot Locker from BUY to HOLD based on our expectations for a slowdown in comp sales and EPS,” said Argus analyst John Staszak.

Staszak lowered the fiscal 2018 EPS (earnings per share) estimate to $5.12 from $5.20 provided earlier. He lowered the fiscal 2019 estimate to $5.64 from $6.00.

The broker has a target price of $54.85 on Foot Locker. The average target price from 22 Wall Street analysts for Foot Locker stock is $72.60.

Foot Locker: Argus Research Downgraded It to &#8216;Hold&#8217;

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What’s behind the downgrade?

Staszak said that it would be difficult for Foot Locker to achieve its fiscal 2018 sales comps goals. It has a high dependence on Nike products—Nike sales have “softened” recently. Nike, which accounts for most of Foot Locker’s sales, also reported a rise in inventories in its latest quarter.

“We believe that it will be difficult for Foot Locker to reach its goal of mid-single-digit comp growth in the second half of FY18 given its heavy reliance on Nike products, which account for more than two-thirds of FL sales,” commented Staszak

He also said, “Foot Locker is seeing weak results in its direct-to-consumer business (13% of revenue), and has been forced to cut prices on its web site. We do not expect a strong recovery in this business in the near term.”

Foot Locker reported its first quarter results on May 19 and missed its top line and bottom line expectations. Read the next section to learn more.

Investors looking for exposure to Foot Locker could consider the First Trust Consumer Discretionary AlphaDEX Fund (FXD), which invests 0.85% of its portfolio in the company.

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