Apparel Stocks

Foot Locker Inc Valuation – January 2019 $FL

Company Profile (excerpt from Reuters): Foot Locker, Inc., incorporated on April 7, 1989, is a retailer of shoes and apparel. The Company operates through two segments: Athletic Stores and Direct-to-Customers. As of January 28, 2017, the Company operated 3,363 primarily mall-based stores, as well as stores in high-traffic urban retail areas and high streets, in the United States, Canada, Europe, Australia and New Zealand. As of January 28, 2017, the Company operated franchised stores in Germany under the Runners Point banner. A total of 74 franchised stores were operating as of January 28, 2017, of which 54 were operating in the Middle East, 15 in Germany, and five in the Republic of Korea.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of FL – January 2019

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $6,378,285,000 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 3.42 Pass
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 269.09% Pass
6. Moderate PEmg Ratio PEmg < 20 14.69 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 2.65 Pass
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 3.42 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.07 Pass
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $3.85
MG Growth Estimate 5.80%
MG Value $77.32
Opinion Undervalued
MG Grade B+
MG Value based on 3% Growth $55.78
MG Value based on 0% Growth $32.70
Market Implied Growth Rate 3.09%
Current Price $56.50
% of Intrinsic Value 73.07%

Foot Locker, Inc. qualifies for both the Defensive Investor and the Enterprising Investor. In fact, the company meets all of the requirements of both investor types, a rare accomplishment indicative of the company’s strong financial position. . The Enterprising Investor has no initial concerns. As a result, all value investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $2.77 in 2015 to an estimated $3.85 for 2019. This level of demonstrated earnings growth outpaces the market’s implied estimate of 3.09% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value above the price.

At the time of valuation, further research into Foot Locker, Inc. revealed the company was trading above its Graham Number of $46.49. The company pays a dividend of $1.24 per share, for a yield of 2.2%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 14.69, which was below the industry average of 32.21, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $9.99.

Foot Locker, Inc. performs fairly well in the ModernGraham grading system, scoring a B+.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) $9.99
Graham Number $46.49
PEmg 14.69
Current Ratio 3.42
PB Ratio 2.65
Current Dividend $1.24
Dividend Yield 2.19%
Number of Consecutive Years of Dividend Growth 7

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Most Recent Balance Sheet Figures

Balance Sheet Information 10/1/2018
Total Current Assets $2,378,000,000
Total Current Liabilities $695,000,000
Long-Term Debt $124,000,000
Total Assets $3,680,000,000
Intangible Assets $196,000,000
Total Liabilities $1,229,000,000
Shares Outstanding (Diluted Average) 115,000,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $4.57
Jan2018 $2.22
Jan2017 $4.91
Jan2016 $3.84
Jan2015 $3.56
Jan2014 $2.85
Jan2013 $2.58
Jan2012 $1.80
Jan2011 $1.07
Jan2010 $0.30
Jan2009 -$0.52
Jan2008 $0.29
Jan2007 $1.60
Jan2006 $1.68
Jan2005 $1.88
Jan2004 $1.39
Jan2003 $1.05
Jan2002 $0.64
Jan2001 -$1.74
Jan2000 $0.43
Jan1999 -$1.00

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $3.85
Jan2018 $3.48
Jan2017 $3.92
Jan2016 $3.26
Jan2015 $2.77
Jan2014 $2.16
Jan2013 $1.56
Jan2012 $0.90
Jan2011 $0.48
Jan2010 $0.34
Jan2009 $0.57
Jan2008 $1.20
Jan2007 $1.61
Jan2006 $1.52
Jan2005 $1.18
Jan2004 $0.67
Jan2003 $0.16

Recommended Reading:

Other ModernGraham posts about the company

10 Low PE Stock Picks for the Defensive Investor – March 2018
Foot Locker Inc Valuation – March 2018 $FL
Best Stocks Below Their Graham Number – August 2017
10 Undervalued Stocks for the Enterprising Investor – August 2017
10 Undervalued Stocks for the Enterprising Investor – July 2017

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Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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