Options Trade – Foot Locker, Inc. (NYSE:FL) Calls 
Monday, March 02, 2015

**OPTIONS TRADE: Buy the FL May 2015 60.000 call (FL150515C00060000) at or under $1.00, good for the day. Place a protective stop loss at $0.40 and a pre-determined sell at $2.00.

by Ian Harvey

March 02, 2015


Introduction

Foot Locker, Inc. (NYSE: FL), a global retailer of athletic shoes and apparel, is scheduled to release its fourth-quarter numbers before the market opens on March 6th. Analysts expect earnings of 91 cents per share, up from 81 cents during the same period last year. The stock is down 0.5% on the year, which bodes well for this options trade.

There are a couple of positive aspects working in Foot Lockers favor:-

1. The first is the fashion shift towards more comfortable athletic wear, known as "athleisure". Athleisure has been applying pressure to traditional apparel retailers, and the trend remains very hot at the current time. Active wear is the fastest growing sector in fashion right now, and Foot Locker is in a great position to capitalize on the trend.

2. The other positive factor is lower gas prices -- lower gas prices lead to higher discretionary spending, some of which will find its way into Foot Locker cash registers.

Technical Details

Foot Locker has a 52-week low of $40.00 and a 52-week high of $59.19. The stock’s 50-day moving average is $54.19 and its 200-day moving average is $54.90. The company has a market cap of $7.894 billion and a price-to-earnings ratio of 16.39.

Earnings

Foot Locker last issued its quarterly earnings data on Friday, November 21st. The company reported $0.82 earnings per share for the quarter, beating the analysts’ consensus estimate of $0.79 by $0.03. The company had revenue of $1.73 billion for the quarter.

During the same quarter last year, the company posted $0.68 earnings per share. Foot Locker’s revenue was up 6.7% compared to the same quarter last year. On average, analysts predict that Foot Locker will post $3.49 earnings per share for the current fiscal year.

Inflow of Money

As per the latest trading data available, the net money flow stood at $2.07 million as the counter received $5.66 million in upticks and gave away $3.59 million in downticks. The final up/down ratio was at 1.58, which is a very positive sign and conveys that long positions are being made.

Other Positive Aspects

Foot Locker Inc. recently announced a $1 billion share buyback plan, an increase in their quarterly dividend and a new capital expenditure program of some $220 million. This shows the signs of a strong stable company with great cash flows.

FL is trading with a trailing 12 month P/E multiple of 16.61 and an estimated forward P/E multiple of 14.65. The stock has an estimated 5 year annual growth of 12.30% and a PEG multiple of 1.35.

From a value investor perspective, as mentioned Foot Locker Inc. trades on an estimated forward P/E multiple of 14.65 – whereas the current estimated forward P/E ratio for the market as a whole is approximately 19.82. Therefore, for investors FL appears to be under-priced.

Analysts Opinions

Barclays set a $70.00 target price on Foot Locker in a report issued on Thursday, 19th February. The firm currently has a buy rating on the stock.

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

• Analysts at Sterne Agee reiterated a buy rating and set a $65.00 price target on shares of Foot Locker in a research note on Thursday, January 15th.

• Analysts at Zacks upgraded shares of Foot Locker from a neutral rating to an outperform rating and set a $59.40 price target on the stock in a research note on Wednesday, January 14th.

• Analysts at Goldman Sachs downgraded shares of Foot Locker from a neutral rating to a sell rating and lowered their price target for the stock from $55.63 to $47.00 in a research note on Wednesday, January 14th.

• Finally, analysts at Credit Suisse downgraded shares of Foot Locker from an outperform rating to a neutral rating and set a $57.00 price target on the stock in a research note on Friday, January 9th. They noted that the move was a valuation call.

As many as 14 analysts have advised buy on Foot Locker, Inc with an average broker rating of 1.64, with as many as 13 Brokerage firm Analysts agreeing with the mean estimate for the short term price target of $61.

Conclusion

With the announcement of a $1 billion share buyback plan, an increase in quarterly dividend and a new capital expenditure program of some $220 million, shows the signs of a strong stable company with great cash flows, as well as the move to increase capital expenditure, will help to provide impetus for additional growth for Foot Locker. Look for a good report, and for the stock to move higher on the results.

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


**OPTIONS TRADE: Buy the FL May 2015 60.000 call (FL150515C00060000) at or under $1.00, good for the day. Place a protective stop loss at $0.40 and a pre-determined sell at $2.00.



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