Ciura: Try Foot Locker on for size

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It’s no secret that building a strong investment portfolio relies on the theory that the best companies make the best portfolio additions.

“Blue chips are those companies that are industry leaders, setting themselves apart from the competition,” Bob Ciura of TheStreet said in Real Money this week.

“One name that should be considered by both value and income-oriented investors is Foot Locker, Inc. (Florida) – Get the report from Foot Locker, Inc.He wrote on Real Money. “Not only is Foot Locker a blue chip company, it’s also our favorite company in the fashion and apparel industry. Buying stocks with great potential for future earnings is something that should never go out of fashion. “

Why buy FL at its current price of $ 48 per share – but down 21% in the past 90 days? for Ciura, the numbers tell the story.

— Foot Locker released its second quarter results on August 20. Revenue increased 9.5% to $ 2.3 billion. Adjusted earnings per share of $ 2.21 compares extremely favorably with adjusted EPS of $ 0.71 a year earlier. the company exceeded expectations in terms of sales and bottom line.

— Same store sales increased by almost 7%.

“With such strength, it’s no surprise that gains were seen almost everywhere,” Ciura said. “Kids Foot Locker and Champs Sports both saw double-digit growth rates, which were made even more impressive as these channels saw double-digit growth in the same period a year ago. Footwear and clothing also stood out in terms of performance.

Foot Locker is also expected to post $ 7.15 in adjusted EPS for fiscal 2021, which would be a 154% increase from 2020 and a 45% improvement from 2019 if achieved. The company also has a compound annual growth rate of just 4.6% over the past decade. However, that includes results impacted by Covid-19 from last year. Looking at the previous 10 year period, EPS had a CAGR of 16.2%.

“With the stocks trading around $ 46, Foot Locker has a price-to-earnings ratio of just 6.4,” Ciura said. “We believe a valuation of 12 times earnings, close to the long-term average, is appropriate for the stock. This involves a massive tailwind of multiple expansion. If the stock traded with our target multiple by 2026, the valuation would add 13.4% to total returns. “

FL’s dividend story also holds true.

“Prior to last year, Foot Locker had seen almost a decade of dividend growth,” Ciura added. “However, the company was forced to suspend and then cut its dividend during the worst part of the pandemic. Prior to last year, the dividend had a 10-year CAGR of almost 10%. Although the dividend has not yet returned to pre-pandemic levels, Foot Locker has increased its dividend twice in 2021. We believe the dividend will exceed its previous mark in the very near future. Stocks are returning 2.6% today, double the S&P 500 Index. ”

In total, Ciura expects annual returns of 19% per year through 2026.

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