4 Reasons Finish Line Shares Could Remain Range-Bound In The Near Term

Courtesy of Benzinga.

Buckingham Research has downgraded Finish Line Inc (NASDAQ: FINL) to Neutral from Buy on high expectations, lack of EPS upside and full valuation.

Analyst Scott Krasik gave four reasons why the stock could remain range-bound in the near to medium term:

1. “Comp expectations are higher than before even though trends decelerated in August and September after it pulled back on promotions.”
2. “We do not see upside to EPS this year as incentive compensation and other investments will offset planned cost savings in 3Q and 4Q.”
3. “Valuation is less compelling as stock is trading in-line with its 3-year average and at a premium to its larger better run competitor, Foot Locker, Inc. (NYSE: FL).”
4. “Despite the decline on Friday, FINL’s stock has increased 37 percent since its post-1Q lows (versus the XRT +5 percent) suggesting investors, at least, partly already believe new CEO Sam Sato will be successful turning around FINL.”

Finish Line reported second-quarter EPS of $0.53. on a 5.1 percent growth in comp. sales upside was offset by a larger-than-expected GM decline of 170 bps on a 200 bps decrease in merchandise margin.

Related Link: Finish Line Stock Price Running Beyond Barclays’ Target

Same-store sales in September are +LSD although management guided to +HSD for the quarter as comparisons ease from here (-10 percent in October and November LY). Management reaffirmed full-year guidance for EPS of $1.50–$1.56 EPS on a 3–5 percent comp increase.

Although the company cleared excess inventory during the second quarter, the analyst is concerned with the larger-than-expected level of discounting.

Further, the analyst said it would be tough for Finish Line to rake in higher than low single digit comp growth without promotions.

At time of writing, shares of Finish Line were up 0.78 percent to $67.59. Krasik also cut the price target to $23 from $25.

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