Street Calls of the Week
On Friday, Barclays (LON:BARC) analysts revised their assessment of Foot Locker (NYSE:FL), downgrading the stock from Overweight to Equal Weight, while simultaneously raising the price target to $24.00 from $14.00. The adjustment in rating comes amid expectations of a merger with DKS, which is anticipated to form a global leader in the sports retail industry. With a current market capitalization of $2.28 billion and a strong financial health score according to InvestingPro, Foot Locker has demonstrated remarkable momentum, returning 99% in just the past week.
According to Barclays, the proposed merger is expected to yield significant benefits, including a combined revenue of $21 billion for FY24, $2.3 billion in adjusted EBITDA, a total of 3,266 stores, and operations across 26 countries. The analysis highlighted several positive outcomes: stronger relationships with key brand partners, complementary real estate portfolios, projected cost synergies between $100 million to $125 million, and EPS accretion by FY26. Additionally, the merger is seen as providing a strategic entry into international markets. InvestingPro analysis shows Foot Locker maintains a healthy current ratio of 1.7, indicating strong ability to meet short-term obligations.
The Barclays team emphasized the potential for a successful Foot Locker turnaround to positively impact the entire sportswear industry, including DKS and key brand partners. This would likely lead to reduced promotions and more robust full-price sales. Following the merger announcement on May 15, 2025, there was a mixed market reaction with DKS shares dropping 15% to $179.05, while Foot Locker’s stock soared 86% to close at $23.90. Based on InvestingPro’s Fair Value analysis, the stock appears overvalued at current levels, with technical indicators suggesting overbought conditions.
The downgrade to Equal Weight by Barclays reflects the belief that the merger will gain approval from both regulators and Foot Locker shareholders, with a high probability of the deal closing at the proposed buyout price of $24 per share. The new price target set by Barclays suggests a modest upside from the closing price on the day of the announcement. For deeper insights into Foot Locker’s valuation and comprehensive analysis, including 12 additional ProTips, check out the full research report available on InvestingPro.
In other recent news, Foot Locker has announced a definitive agreement for its acquisition by Dick’s Sporting Goods (NYSE:DKS), valued at an equity price of $2.4 billion. This strategic move is expected to enhance Foot Locker’s fundamentals, including brand partner relationships and omni-channel retailing. Analysts have weighed in on the acquisition, with JPMorgan upgrading Foot Locker’s stock from Underweight to Neutral and raising the price target to $24.00, while Needham downgraded the stock from Buy to Hold. The anticipated benefits of the acquisition include improved performance and potential synergies, although some analysts, like those at Citi, caution about potential regulatory challenges.
Telsey Advisory Group maintained a Market Perform rating on Foot Locker with a price target of $20.00, highlighting potential benefits from enhanced supply chain and e-commerce capabilities under Dick’s leadership. The acquisition is expected to finalize in the second half of 2025, marking a significant consolidation in the retail sector. Meanwhile, Jefferies analyst Randal Konik reaffirmed a Buy rating on Nike (NYSE:NKE), suggesting that the acquisition could benefit Nike by improving Foot Locker’s operations and distribution strategy. These developments reflect a dynamic shift in the retail landscape, with investors closely monitoring the progress of the acquisition and its implications for the involved companies.
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