Yahoo Finanza Morgan Stanley Slashed Foot Locker’s Target Price to $47 on More Cautious Outlook
Morgan Stanley slashed their base stock price forecast on Foot Locker to $47 from $66 on a more cautious outlook, reiterating an “Equal-weight” rating on the retailer of shoes and apparel.
In November, Foot Locker reported quarterly earnings of $1.93 per share in the third quarter, beating the market expectations of $1.36 per share. The New York-based retailer posted revenues of $2.19 billion for the quarter ended October 2021. That also topped analysts’ expectations.
“We lower our Foot Locker (FL) price target to $47 on a more cautious S-T outlook & subsequently revised M-T forecast & L-T DCF assumptions. Recent store checks suggest FL is low on Nike (NKE) inventory, which we expect to continue through at least 1Q22 given NKE does not expect to be fully back in stock until May or June 2022. Given this dynamic, we trim our 4Q21 & 2022 revenue & GM forecasts accordingly against consistent SG&A spend, which lowers our respective EPS estimates by 23% & 28%, respectively,” noted Kimberly Greenberger, equity analyst at Morgan Stanley.
“We then refine our M-T forecast for the revised 2021e & 2022e base years, cutting EPS by 35% on average in 2023-2026e. This accounts for the majority of our price target change, though we also 1) lower our terminal EBIT margin assumption across cases (to 5.0%, 10.0%, & 3.0% from 6.0%, 10.5%, & 5.0% prior), in-line with the lower M-T forecasts, & 2) update our WACC inputs for current market conditions. All in, our price target, bull case, and bear case decline to $47, $115, & $33 from $66, $135, & $44 prior. Our revised price target equates to 4x 2022e EV/EBITDA, slightly below FL’s 5x pre-Covid average.”
Morgan Stanley gave the stock price forecast of $115 under the bull scenario and $31 under the worst-case scenario. Other equity analysts also updated their stock price outlook. Cowen and company cut the target price to $53 from $62. Berenberg lowered the price target to $73 from $81. Deutsche Bank slashed the price objective to $72 from $75.
Nine analysts who offered stock ratings for Foot Locker in the last three months forecast the average price in 12 months of $158.57 with a high forecast of $170.00 and a low forecast of $140.00.
The average price target represents a 25.54% change from the last price of $126.31. Of those nine analysts, seven rated “Buy”, two rated “Hold” while none rated “Sell”, according to Tipranks.
On Thursday, Foot Locker shares closed 0.80% lower at $43.96. The stock rose over 8% so far this year.
“Four factors cloud our ability to assess Foot Locker’s (FL) earnings growth trajectory, leaving it a “show-me” story: 1) pre-Covid performance degradation & seemingly unachievable LT targets, 2) its large, mall-based footprint against declining traffic & a limited store growth oppty (a sales & GM headwind on B&O deleverage), 3) unclear cost base rationalization plans against likely flat to +LSD post-Covid & WSS/atmos acquisition avg. revenue/comp growth (recall FL requires +MSD comp for SG&A lev.), & 4) the GM impact of mix shift to eComm,” Morgan Stanley’s Greenberger added.
“We like FL’s recent use of cash (dividend raise, share repo, WSS/atmos acquisition) & real estate rationalization plans. We anticipate performance giveback in 2022 onwards.”
Technical analysis suggests it is good time to sell as 100-day Moving Average and 100-200-day MACD Oscillator signals a strong selling opportunity.
This article was originally posted on FX Empire
