Step up to Foot Locker

02/01/2017 10:00 am EST

Focus: STOCKS

Richard Moroney

Editor, Dow Theory Forecasts

While we appreciate near-term potential at Foot Locker (FL), what stands out is its consistency. Like any good distance runner, Foot Locker has learned to keep a steady pace, explains Richard Moroney, editor of Dow Theory Forecasts.

Over the last 24 quarters, the athletic-shoe retailer has delivered median per-share-profit growth of 22%, with no quarter dipping below 8%. Sales growth has been even more consistent; the last time sales fell was the October 2009 quarter.

Growth has slowed in recent quarters to a more manageable pace, and we aren’t the only ones who expect Foot Locker to keep making good time.

Analysts estimate profit gains of 14% in the January quarter, 10% in the year ending January 2018, and 10% annually over the next five years. Given Foot Locker’s history, those targets seem conservative.

Worldwide, more people are turning to physical fitness in an effort to improve their health, creating new groups of customers Foot Locker knows how to reach.

At the end of October, Foot Locker operated 3,394 stores in 23 countries in North America, Europe, Australia, and New Zealand, with franchises opening in the Middle East and South Korea. The company has focused its expansion efforts in two directions: overseas, and Kids Foot Locker.

Augment the grass-roots demand drivers with a stream of new and innovative products, and you have a recipe for market-beating growth.

Despite its compelling profit story and our confidence growth will continue (Quadrix earnings-predictability score of 99), Foot Locker trades at an appealing price.

You can purchase it for just 14 times expected year-ahead earnings, 19% below the average for apparel retailers in the S&P 1500 Index. Foot Locker, which earns a Quadrix Overall score of 96, is rated Buy and Long-Term Buy.

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