Shares of Foot Locker Inc (NYSE: FL) have recovered nearly 10% this week but Gilman Hill’s Jenny Harrington is convinced it’s still not too late to buy the stock at a deep discount.
Harrington’s bull case for Foot Locker Inc
FL was hit hard late last week after the shoe stores company offered disappointing guidance for the future. This afternoon on CNBC’s “Halftime Report”, however, Harrington said there was plenty in the earnings report that makes the stock a “buy”.
What I heard was that Foot Locker increased its dividend to $1.60, which gave it a yield of 5.8%. They’re buying back $1.20 billion worth of shares. They lowered earnings but that way more than covered the yield. So, I bought it because the valuation alone is super compelling.
Foot Locker was a notable COVID beneficiary that had full-year earnings top $7.50 a share amidst the pandemic. The lowered earnings outlook, therefore, shouldn’t come as a surprise now that the crisis is rolling off, added Harrington.
Harrington shrugs off bleaker analysts’ outlooks
Also on Tuesday, Barclays slashed its price target on Foot Locker to $24 a share that represents a 20% downside from here. According to Harrington, however, the dovish call is only related to expectations that were a bit too beefed up. She noted:
Foot locker is a company that’s super financially stable, trading at six times earnings with a 5.80% dividend yield. It just takes the analyst community some time to adjust to revised numbers. So, I bought FL on Friday afternoon. It’s a really great investment and will continue to be one.
The downbeat guidance from Foot Locker was also partially related to changes in vendor mix that will see it selling fewer Nike (its top supplier) products this year. The U.S. firm also announced a cost-cutting programme last week that will save roughly $200 million.
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