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Why B. Riley FBR Downgraded Foot Locker to ‘Neutral’ Rating

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Today, B. Riley FBR downgraded Foot Locker (NYSE:FL) from a “buy” rating to a “neutral” rating. The firm also lowered its target price from $42 to $32. The new target price represents a 12-month return potential of 13.9% from its closing price on June 19. As reported by CNBC, B. Riley FBR blamed the implementation of higher promotional activities from the athletic footwear and apparel retailer for the downgrade.

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Other analysts’ recommendations for Foot Locker

Last month, Foot Locker reported lower-than-expected first-quarter earnings. For the quarter, the company reported revenues of $1.18 billion, which missed analysts’ expectations of $1.31 billion. The adjusted loss per share came in higher at $0.67 compared to analysts’ expectation of a loss of $0.25 per share. However, analysts’ reactions were mixed on Foot Locker’s first-quarter performance. Since the company’s first-quarter earnings, Susquehanna and Guggenheim lowered their target prices. Meanwhile, Piper Sandler, Citigroup, Deutsche Bank, Baird, and UBS raised their target prices for the stock. As of today, analysts’ consensus target price was $28.71, which represents a 12-month return potential of 2.2%. Overall, 23 analysts cover Foot Locker. Among the analysts, 60.9% recommend a “hold,” 34.8% recommend a “buy,” and 4.3% recommend a “sell.”

Analysts’ expectations

Analysts expect Foot Locker to report revenues of $6.34 billion in 2020 and $7.29 billion in 2021. The estimates represent a year-over-year decline of 20.8% in 2020 and a growth of 15% in 2021. Analysts also expect the company’s EPS to decline significantly this year. They expect the company to report an adjusted EPS of $0.71, which represents a fall of 85.6% from $1.13 in 2019. However, they expect the company’s EPS to rise by 384.2% to $3.44 in 2021.

As of June 19, Foot Locker was trading at 39.5x analysts’ 2020 EPS expectations and at 8.2x analysts’ 2021 EPS expectations.

Foot Locker’s stock performance

Despite the downgrade, Foot Locker was trading marginally in the green as of 10:07 AM ET today. The broader equity markets were also in the green. The S&P 500 Index was trading 0.2% higher during the same period. YTD, Foot Locker has lost 28% of its stock value as of June 19. The weak first-quarter performance, temporary store closures amid the pandemic, and weakness in the broader equity markets led to a fall in the company’s stock price. So far this year, the company has underperformed the broader equity markets and its peers. The S&P 500 Index has fallen by 4.1% YTD. Meanwhile, Nike (NYSE:NKE), Lululemon Athletica (NASDAQ:LULU), and Columbia Sportswear (NASDAQ:COLM) have returned -5.4%, 28.4%, and -21.5%, respectively. Earlier this month, Lululemon also reported a lower-than-expected first-quarter performance. To learn more, read Lululemon Stock Falls More than 5% on Weak Q1 Earnings.

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