Why Don't More Analysts Think Foot Locker (FL) Is a Buy?

Foot Locker may be undervalued with strong growth indicators, but the 18 analysts following the company give it an average rating of hold. Their target prices range from $30.0 to $60.0 per share, for an average of $43.94. At today's price of $30.18, Foot Locker is trading -31.33% away from its average target price, suggesting there is an analyst consensus of strong upside potential for the stock.

Foot Locker, Inc., through its subsidiaries, operates as a footwear and apparel retailer in North America, Europe, Australia, New Zealand, Asia, and the Middle East. Based in New York, NY, the mid-cap Consumer Discretionary company has 15,200 full time employees. Foot Locker has provided a 3.9% dividend yield over the last 12 months.

Foot Locker has a trailing twelve month P/E ratio of 8.5, compared to an average of 22.33 for the Consumer Discretionary sector. Based on its EPS guidance of 4.15, the company has a forward P/E ratio of 7.3.

The average compound growth rate of the company's historical and projected earnings per share is -1.6%. On this basis, the company's PEG ratio is -7.14, which indicates that its shares are overpriced.

On the other hand, the market is potentially undervaluing Foot Locker in terms of its book value because its P/B ratio is 0.86. In comparison, the sector average P/B ratio is 3.12. The company's shares are currently -51.7% below their Graham number, indicating that its shares have a margin of safety.

So why are analysts giving FL a bad rating? We believe analysts could be alarmed by the company's disappointing -37.5% rate of cash flow growth over the last 4 years. Foot Locker's poor EPS growth rate of -5.8% is another drawback that analysts are focusing on.

2020-01-31 2021-01-31 2022-01-31 2023-01-31
Revenue (MM) $8,005 $7,548 $8,958 $8,759
Gross Margins 31.8% 28.9% 34.4% 32.0%
Operating Margins 8.9% 5.6% 11.5% 7.9%
Net Margins 6.22% 4.28% 9.97% 3.9%
Net Income (MM) $498 $323 $893 $342
Net Interest Income $11,000 -$7,000 -$14,000 -$15,000
Depreciation & Amort. -$179,000 -$176,000 -$197,000 -$208,000
Earnings Per Share $4.5 $3.08 $8.61 $3.54
EPS Growth n/a -31.56% 179.55% -58.89%
Diluted Shares (MM) 109 105 104 93
Free Cash Flow (MM) $509 $903 $457 -$112
Capital Expenditures (MM) -$187 -$159 -$209 -$285
Net Current Assets (MM) -$1,733 -$1,432 -$2,517 -$2,093
Current Ratio 2.0 1.73 1.36 1.57
Long Term Debt (MM) $122 $8 $451 $446
Net Debt / EBITDA -0.31 -1.46 0.15 0.62
The above analysis is intended for educational purposes only and was performed on the basis of publicly available data. It is not to be construed as a recommendation to buy or sell any security. Any buy, sell, or other recommendations mentioned in the article are direct quotations of consensus recommendations from the analysts covering the stock, and do not represent the opinions of Market Inference or its writers. Past performance, accounting data, and inferences about market position and corporate valuation are not reliable indicators of future price movements. Market Inference does not provide financial advice. Investors should conduct their own review and analysis of any company of interest before making an investment decision.