On Thursday, Baird adjusted its outlook on Foot Locker (NYSE: NYSE:FL), reducing the price target to $24 from the previous $27 while maintaining a neutral rating on the stock.
The firm's analyst cited a mix of factors influencing the decision, including a shortfall in the company's third fiscal quarter earnings per share (EPS), which missed estimates by $0.08. Despite better-than-expected comparable store sales, Foot Locker experienced weaker gross margins.
The analyst's commentary highlighted that Foot Locker has revised its fiscal year 2024 earnings per share (EPS) midpoint downwards by 22%, which reflects a balanced fourth-quarter comparable sales expectation. This revision also accounts for additional pressure from footwear markdowns. The report noted several factors at play that could affect future performance, both positively and negatively.
In response to the current outlook, Baird has also reduced its fiscal year 2025 EPS estimates for Foot Locker by 10%. This adjustment takes into account a more cautious view on margin visibility for the first half of 2025. However, it also considers the potential for significant benefits should there be a recovery in the Nike (NYSE:NKE) product line and marketplace, which could positively impact Foot Locker.
The adjustment in Foot Locker's price target comes after the stock concluded trading with a 9% decline. The new price target of $24 implies a forward-looking price-to-earnings (P/E) ratio of approximately 10.5 times the next twelve months' earnings, plus 1 P/E, which the analyst suggests offers a balanced risk/reward scenario for investors.
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