Foot Locker (FL) Selloff Overdone- Jefferies

Jefferies analyst, Edward Plank, defended Foot Locker (NYSE: FL) and expects fluctuations in results to begin to smooth out in the second quarter.

FL put up solid 1Q results in a tough environment. Granted, growth wasn't what the market has grown used to, and the basketball slowdown and negative QTD comp fueled negative sentiment. But in our view, the stock is being overly punished for NT volatility that should smooth as 2Q progresses and even more so in 2H. Most aspects of the biz are performing well and valuation is very attractive.

FL's diversity and execution chops were evident as lifestyle running and classics offset basketball declines, driving an overall +MSD% comp in footwear. Of note here is that ASPs increased LSD%, showing that consumers are willing to pay for other premium categories and FL isn’t as bound to basketball as some might think.

In addition to a product tailwind from the Olympics, the analyst expects newer innovations in signature basketball, along with more rational price points to rejuvenate the category. As such, mgmt maintained its full year outlook for +MSD% comps in each quarter and +DD% EPS growth.

FL shares currently trade at ~11.5x P/E and 5.5x EV/EBITDA on FY18 estimates.

No change to Buy rating, PT drops to $73 from $82 on on 15.5x '18 P/E.

SI Note: FL was highlighted as a name to add to your watch list in the Stealth Growth Insider newsletter on Wednesday, 5/17.

For an analyst ratings summary and ratings history on Foot Locker click here. For more ratings news on Foot Locker click here.

Shares of Foot Locker closed at $54.77 yesterday.

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