Option Trade 
Foot Locker, Inc. (NYSE:FL) Calls 
Tuesday, August 18, 2015

**OPTION TRADE: Buy the FL Nov 2015 75.000 call (FL151120C00075000) at approximately $3.00. Place a protective stop loss at $1.20, and a pre-determined sell at $6.00.

by Ian Harvey

August 18, 2015


Foot Locker, Inc. (NYSE: FL), a footwear and accessories retailer, will report its second-quarter results on August 21. Foot Locker will post its quarterly results before the market opens, with analysts forecasting earnings of $0.69 per share, up from $0.64 during the same period last year. The stock is up 28.5% since the start of the year.

The fashion trend known as "athleisure" benefits athletic footwear and apparel retailers such as Foot Locker, and is a primary reason for the company's impressive earnings growth as of late. Last quarter, the company reported year-over-year earnings growth of 16.2%, and analysts expect more of the same moving forward.

Looking ahead, Wall Street pegs the company to grow earnings by 11% in 2017 versus 2016, which should keep momentum under the stock. The stock is currently trading just shy of an all-time high, but valuation is not a major concern. FL has a P/E of 19.3, versus the industry average 22.3, so there is still upside potential, especially if the company is able to hit its earnings forecast.

The company has a solid earnings track record, posting better-than-expected quarterly earnings each of the last seven quarters.

Technical Details

The stock price of Foot Locker Inc. has increased 33.53% over the last 200 days, and is in powerful up trend. In the last 50 and 100 days, Foot Locker Inc. is up 18.14% and up 19.21%, respectively.

In taking a look at the price level and moving averages of Foot Locker, Inc., the equity is trading $3.60 away or +5.15% from its 50-day moving average of $69.74.

Looking further back, the stock is $10.87 away from its 200-day moving average of $62.47, or a difference of +17.40%.


Previous Earnings

Foot Locker last posted its quarterly earnings results on Friday, May 22nd. The company reported $1.29 EPS for the quarter, beating the Thomson Reuters consensus estimate of $1.22 by $0.07.

During the same quarter in the previous year, the company posted $1.11 earnings per share. The company earned $1.92 billion during the quarter. The business’s quarterly revenue was up 2.6% on a year-over-year basis. On average, equities research analysts anticipate that Foot Locker, Inc. will post $4.03 EPS for the current year.

Future Earnings

Wall Street analysts expect Foot Locker, Inc. to report earnings per share of $0.69 for the current fiscal quarter. This number is based on the average estimate of the sell-side research firms that cover the stock.

Looking further ahead at the long term growth estimates for the firm, analysts are anticipating earnings per share of $4.11 for the current year. The most bullish analyst estimates earnings per share of $4.2, while the most bearish is estimating EPS of $4.03 for the year.

Positive Aspects

• Investors have apparently begun to recognize positive factors including earnings growth. This has helped drive up the company's shares by a sharp 44.74% over the past year, a rise that has exceeded that of the S&P 500 Index.

• Regarding the stock's future course, although almost any stock can fall in a broad market decline, FL should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year.

• Foot Locker Inc has improved earnings per share by 17.3% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. It is felt that this trend should continue. During the past fiscal year, Foot Locker Inc increased its bottom line by earning $3.56 versus $2.85 in the prior year. This year, the market expects an improvement in earnings ($4.03 versus $3.56).

• The net income growth from the same quarter one year ago has greatly exceeded that of the S&P 500, but is less than that of the Specialty Retail industry average. The net income increased by 13.6% when compared to the same quarter one year prior, going from $162.00 million to $184.00 million.

• Despite its growing revenue, the company underperformed as compared with the industry average of 8.7%. Since the same quarter one year prior, revenues slightly increased by 2.6%. Growth in the company's revenue appears to have helped boost the earnings per share.

• FL's debt-to-equity ratio is very low at 0.05 and is currently below that of the industry average, implying that there has been very successful management of debt levels.

Analysts Opinions

In an analyst report sent to clients and investors by Canaccord Genuity on 17 August, Foot Locker Inc had its price target upgraded to $78.00. The firm now has “Buy” rating on the stock.

Foot Locker is leveraging the secular tailwinds that continue to favor athletic, the firm noted.

Additionally, it is executing on its initiatives to drive productivity gains across ecommerce platforms, according to the analyst note.

"As such, we see Foot Locker continuing to drive EBIT margin expansion while also returning excess cash to shareholders via buybacks and dividends," Canaccord analysts said.

Separately, TheStreet Ratings team rates Foot Locker Inc as a Buy with a ratings score of A+. TheStreet Ratings Team has this to say about their recommendation:

"We rate Foot Locker Inc (FL) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its solid stock price performance, impressive record of earnings per share growth, increase in net income, revenue growth and largely solid financial position with reasonable debt levels by most measures. We feel its strengths outweigh the fact that the company shows weak operating cash flow."

Out of 20 brokers covering Foot Locker Inc., 14 rate it a Buy, 5 indicate a Hold while 2 suggest a Sell. The highest target is $84.00 and the lowest is $50.00.

Harvey’s Options Volatility Indicator


Consumer confidence is solid, and the athleisure fashion trend continues to boost sales for athletic retailers. Expect a good report, and FL shares to gain on the news.

Therefore, based on the facts above, and Harvey’s Options Volatility Indicator, the following option trade is recommended…..

**OPTION TRADE: Buy the FL Nov 2015 75.000 call (FL151120C00075000) at approximately $3.00. Place a protective stop loss at $1.20, and a pre-determined sell at $6.00.

”Success is simple. Do what's right, the right way, at the right time.”

Option Tip for your Success!
Options traders are not successful because they win.
Options traders win because they are successful.

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