Foot Locker Stock Trades at New Highs Ahead of Earnings

FL hasn't strung together eight straight wins since November 2015

by Karee Venema

Published on Feb 21, 2019 at 9:26 AM

Ahead of its fourth-quarter earnings report, due before the market opens next Friday, March 1, Foot Locker, Inc. (NYSE:FL) unveiled its 2019 capital allocation plans, which include a 10% quarterly dividend hike and a $1.2 billion share buyback plan. In reaction, FL is trading up 2.3% ahead of the bell -- set to open in territory not seen since May 2017, though upside could be contained by Nike (NKE) headwinds.

Foot Locker shares have been tearing higher since a late-December test of the $47 region, home to pre-bear gap levels from May and their 200-day moving average at the time. The stock has surged 27.6% since its Dec. 20 intraday low of $47.07, and hit a 21-month high of $60.32 yesterday before settling at $60.05 -- and notching its seventh straight daily win.

Short sellers have started throwing in the towel on their bearish FL positions, which could create tailwinds for the stock, should this short-covering trend continue. Short interest fell 18.2% in the most recent reporting period, yet it would still take more than four days to cover the remaining 9.71 million shares sold short.

Analysts have been slow to react to FL's recent rally, too, with seven of 16 brokerages still maintaining a "hold" or worse recommendation, and the average 12-month price target of $60.86 in line with current levels. A round of upgrades and/or price-target hikes could draw more buyers to the table.

Historically speaking, FL stock tends to make volatile moves after earnings, averaging a next-day swing of 17.4% over the past eight quarters. It's a toss of the coin as to whether the reactions have been positive or negative, but the most recent one last November resulted in a 14.9% one-day gain. This time around, the options market is pricing in a 14.3% swing, regardless of direction.


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