Options Trade – Foot Locker, Inc. (NYSE:FL) Calls
Sunday, March 02, 2014

**OPTIONS TRADE: Buy the FL May 2014 45.000 call (FL140517C00045000) at or under $0.65, good for the day. Place a protective stop limit at $0.25 and a pre-determined sell at $1.30.

by Ian Harvey

March 02, 2014

Introduction

Generally touted as "Make or Break", the last holiday season was primarily "break" for most retailers as they experienced a weak year. Aggressive promotions, reduced footfall, increase in online shopping, and finally the frigid weather - all contributed to a dismal holiday season in 2013. Weather did not play much of a spoilsport earlier in the concluding quarter, but has been nasty ever since.

What further made this holiday season challenging for retailers was the time frame, as 2013 presented only 25 days between Black Friday and Christmas as against 31 days in 2012. A slew of retailers have reported loss of margins in their preliminary reports and subsequently trimmed their outlook for the quarter sending stock prices spiraling down.

An encouraging overall economic scenario heralds hope for Retail. The economic recovery gathered momentum in the second half of 2013, with real GDP increasing at an average annual rate of over 3.7% in the third and fourth quarters, as against 1.8% in the first and second quarters, prompting the Federal Reserve to continue with its modest tapering efforts.

Moreover, a recovering economy boosted the Consumer Confidence Index to the north for the second consecutive month to 80.7 in January from 77.5 in December. This development is more than welcome, as consumer spending constitutes over two-third of the U.S. economic activity. Only, lesser-than-expected job additions in January make us wary. The unemployment rate still stands at 6.6% in January, higher than the Fed's threshold limit of 6.5%.

However, it is believed that with renewed customer sentiment and improving economy, Retail stands a strong chance of delivering a robust performance in 2014. Therefore, it might be a good idea to bet on the retail stocks that are poised to beat earnings estimates in this quarter. An earnings beat will reiterate investors' confidence in these stocks, leading to rapid price appreciation.

One such stock that fits this scenario is athletic footwear retailer, Foot Locker, Inc. (NYSE: FL), which is scheduled to report its fourth quarter results before the market opens on March 7. The stock has traded slightly higher in 2014, appreciating 1.8% year to date. The consensus estimate for the company's fourth quarter earnings is $0.75 per share.

Analysts have forecast $0.75 per share, but the rumored number is $0.77, so that is the number the company will really need to hit for Wall Street to view the report as a beat. After the company's last earnings report in November, the stock made a strong move higher, and has managed to hang on to that momentum in the months since. The third quarter results highlighted impressive same store sales growth of 4.1% year over year, and total sales growth of 6.4%.

Company Details

Foot Locker, Inc. is a specialty athletic retailer that, as of February 1, 2014 operated 3,473 stores in 23 countries in North America, Europe, Australia, and New Zealand.

Through its Foot Locker, Footaction, Lady Foot Locker, Kids Foot Locker, Champs Sports, SIX: 02, Runners Point, and Sidestep retail stores, as well as its direct-to-customer channels, including footlocker.com, Eastbay, CCS.com, SIX: 02.com, runnerspoint.com, and sidestep-shoes.com, the Company is a leading provider of athletic footwear and apparel.

Key Statistics for FL

Current P/E Ratio (ttm) 14.9416
Estimated P/E(01/2014) 14.9071
Relative P/E vs. SPX 0.8701
Earnings Per Share (USD) (ttm) 2.7915
Est. EPS (USD) (01/2014) 2.7980
Est. PEG Ratio 1.7154
Market Cap (M USD) 6,120.49
Shares Outstanding (M) 146.74
30 Day Average Volume 1,625,295
Price/Book (mrq) 2.4803
Price/Sale (ttm) 0.9750
Dividend Indicated Gross Yield 2.11%
Cash Dividend (USD) 0.2200
Dividend Ex-Date 04/15/2014
5 Year Dividend Growth 5.92%
Next Earnings Announcement 03/07/2014

Technical Analysis

FL was recently trading at $41.98, just $0.14 below its 12-month high and $10.68 above its 12-month low. Technical indicators for FL are bullish and the stock is in a weak upward trend. The stock has support above $36.65 and has broken through recent resistance.

The company has a market capitalization of $6.13 billion.

Earnings

Foot Locker last released its earnings data on Friday, November 22nd. The company reported $0.68 EPS for the quarter, beating the Thomson Reuters consensus estimate of $0.66 by $0.02. The company had revenue of $1.62 billion for the quarter, compared to the consensus estimate of $1.58 billion.

During the same quarter in the prior year, the company posted $0.63 earnings per share. The company’s quarterly revenue was up 6.4% on a year-over-year basis. Analysts expect that Foot Locker will post $2.80 EPS for the current fiscal year.

This time round Foot Locker is expected to report FY 2013 fourth-quarter EPS of 76 cents on revenue of $1.76 billion, compared with a profit of 68 cents a share on revenue of $1.71 billion in the year-ago period. Foot Locker Inc. is trading at around $41.77 a share. Over the past 12 months, the stock has gained 23.1 percent.

Analysts Opinions

Analysts at Deutsche Bank raised their price target on shares of Foot Locker from $41.00 to $45.00 in a research note on Friday, February 14th. They now have a “buy” rating on the stock.

Also, the company has been the subject of a number of research reports:-

• Analysts at JPMorgan Chase & Co. initiated coverage on shares of Foot Locker in a research note on Monday, January 27th. They set an “overweight” rating and a $47.00 price target on the stock.

• Analysts at Susquehanna raised their price target on shares of Foot Locker from $44.00 to $46.00 in a research note on Friday, January 17th.

Shares of Foot Locker have earned an average recommendation of “Buy” from the nineteen ratings firms that are currently covering the company. Three equities research analysts have rated the stock with a hold recommendation and thirteen have issued a buy recommendation on the company. The average twelve-month target price among brokerages that have covered the stock in the last year is $42.00.

Conclusion

Many are taking a bullish stance on the stock, and it is believed that improved economic conditions bode well for its performance over the course of this year. Armed with strong fundamentals and growth prospects provide good investment options at the moment.

So, expect another upbeat quarterly report, and with the stock having a price-to-earnings ratio of just 15.3, the stock could get another nice bump following this report as it did back in November on the heels of its recent quarterly report.

Therefore, based on the facts above the following options trade is recommended…..


**OPTIONS TRADE: Buy the FL May 2014 45.000 call (FL140517C00045000) at or under $0.65, good for the day. Place a protective stop limit at $0.25 and a pre-determined sell at $1.30.



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