Wall Street is underestimating Foot Locker’s (FL) growth potential in the new athletic retail apparel landscape, according to Quo Vadis President John Zolidis. In twelve months, he sees Foot Locker trading 50% higher. This stock is a good investment.

“The Street is underestimating the benefits from changes in Nike (NYSE:) distribution and the environment post-Covid, and therefore estimates are too low,” he says. “We see upward revisions driving valuation expansion with a potential 50% gain over one year.”

Last month, Foot Locker (NYSE:) reported a net income of $430 million, or $4.09 per share, for the 13 weeks ended July 31, 2021. That’s a significant improvement from a year earlier when the company reported $45 million, or $0.43 per share.

TipRanks assigns a Smart Score of 8 to Foot Locker’s stock, citing strong fundamentals and technicals, and increased hedge fund activity. (See Foot Locker stock charts on TipRanks)

Great Nike Potential

What’s Wall Street missing about Foot Locker’s potential? According to Zolidis, there are a few things.

The first is the relationship it has with Nike (NKE), after the sports apparel giant changed from an indirect model (wholesale) to one that allows direct sales. “Foot Locker bears believe this strategy means Nike plans a ‘Last Dance’ with Foot Locker and will pull product and demand more margin,” he says.

Zolidis believes the reverse. Nike’s wholesale sales declined, while Foot Locker continued to be a strong partner. The estimated 28% increase in sales for Nike products was due to the increased sales.

Meanwhile, Nike severed its relationship with several retailers, including DSW, Belks, Urban Outfitters (NASDAQ:), Dillard’s (DDS), Shoe Show, Zappos, Big Five Sporting Goods, Bob’s Stores, Dunham’s Sports, Fred Meyer, Olympia Sports, EbLens, VIM City Blue, and even mighty Amazon.com (NASDAQ:).

Nike has cut off the distribution channels of these retailers, but scores more are not in business to carry Nike products. That includes Sports Authority, Modell’s 2020, and MC Sports, to mention but a few.

Simply stated, Foot Locker could become the only Nike distributor.

The second matter Wall Street is missing about Foot Locker’s prospects, according to Zolidis, is the change in the business environment in the post-pandemic world. “We believe investors are underestimating the effects of rationalization in the industry and post-Covid demand and the growing consumer interest in athletic activity,” he says.

Still, there’s valuation. Foot Locker’s share price is estimated to be $8. Zolidis believes Foot Locker can earn as much as $18 per share. This could increase if his predictions about increased demand for athletic apparel post-COVID are true.

Wall Street Weighs In

Though not as bullish, the analyst community is on the same side as Zolidis. Foot Locker is rated a moderate buy by analysts with a $74.00 average Foot Locker target price and high forecast at $90.00, low forecast at $60.00. This average price target is 49.1% higher than the previous price of $49.63.

Conclusion

The bottom line: Foot Locker’s relationship with Nike has grown stronger, not weaker, after Nike changed its distribution model, as several retailers have vanished. If this is true, Foot Locker’s relationship with Nike has strengthened and not diminished.

Disclosure: Panos Mourdoukousas held a position at the time this article was published.

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