Zacks Investment Ideas feature highlights: Nike, Skechers, Shoe Carnival, Foot Locker and Finish Line

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Dec 09, 2014, 09:30 ET

CHICAGO, Dec. 9, 2014 /PRNewswire/ -- Today, Zacks Investment Ideas feature highlights Features: Nike (NYSE:NKE-Free Report), Skechers (NYSE:SKX-Free Report), Shoe Carnival (Nasdaq:SCVL-Free Report), Foot Locker (NYSE:FL-Free Report) and Finish Line (Nasdaq:FINL-Free Report).

Hot Foot or Fast-Running Shoe Stocks?

Investors are always looking for the next Cinderella story. Somewhere there is a hidden beauty that will come from nowhere and will have a perfect footprint for success. Earlier in the year, it looked like the oil trade was going to be the bell of the ball, but with Texas Tea seeing prices crashing lower, that is no longer the case.

Investors would be wise to revisit the story of Cinderella to find the next sector to fall in love with. The story revolves around a certain article of clothing, one that Wall Street analysts have found a new appreciation for.

Let's take a look at three shoe stocks that all carry a Zacks Rank #1 (Strong Buy) or Zacks Rank #2 (Buy) and see if investors should still lace up for the long run, or find out if these stocks likely to step in it.

The Giant

Nike (NYSE:NKE-Free Report) is currently a Zacks Rank #2 (Buy) and is probably the name that most investors jump to when thinking of a shoe company. With a market capitalization of more than $85B, they are the gorilla in the room and have products that run beyond footwear.

The long term story here is looking very good as NKE has a solid history of beating the number. NKE last missed the Zacks Consensus Estimate in the May 2012 quarter which was released in late June of that year.

The Zacks Consensus Estimate for Fiscal 2015 moved from $3.40 in August to $3.59 in September and that is where the number remains. The next fiscal year also saw a big lift higher in earnings at that time but also saw estimates inch higher in November.

The valuation for NKE is what might keep some investors on the sidelines, as it trades at a mild premium in terms of both trailing and forward PE, but at larger premiums for Price to book and price to sales. As it is so large, its metrics tend to skew the industry average, but it is clear that value investors would probably rather shy away from a stock that has a 7.7x price to book multiple with the industry average at 5x.

The price and consensus chart shows a great picture however, of stock that has seen solid earnings growth which has greatly contributed to a rising stock price.

A More Petite Play

Skechers (NYSE:SKX-Free Report) is a good deal smaller than NKE, at $3B in market capitalization, but it is still big enough to get plenty of institutional interest. This company also makes more than just footwear, but right now the memory foam in the soul of the shoe seems to be a big hit.

Speaking of big hits, SKX has been able to beat the Zacks Consensus Estimate in each of the last four quarters. The most recent report had the company earnings $1.07 per share when the Zacks Consensus Estimate was calling for $0.91. That translates to a positive earnings surprise of 17.5%, but despite those solid numbers, the stock traded lower by 6.5% in the session following the release.

As a Zacks Rank #1 (Strong Buy), SKX has a solid history when it comes to beating the Zacks Consensus Estimate. This chart shows that the last four reports for SKX were beats, but prior to that the history was a little more sketchy.

The valuation for SKX is much more appealing than what we saw for NKE. The stock trades in line with the industry average PE of 23x trailing and 22x forward. The price to book of 2.8x is almost half of the industry average and below the crucial 3x level that will rule out most value investors. The price to sales multiple of 1.4x is also well below the 2.2x industry average.

Not Giving You The Runaround

When I think of a carnival, I don't always think of shoes... but if you have been following my puns, you know that the next stock I am talking about is Shoe Carnival (Nasdaq:SCVL-Free Report). This retailer of footwear and apparel recently report a solid quarter. In fact, the beat was the first one SVCL has had in a year, but the stock really kicked higher after the release.

In reporting EPS of $0.54, the company was able to top the Zacks Consensus Estimate of $0.49 by $0.05. That translates to a positive earnings surprise of 10%, and the report came with some upside to guidance as well. The stock ran higher by more than 15% in the session following the report.

While this stock is a Zacks Rank #1 (Strong Buy), investors may want to slip into some comfy shoes while doing their due diligence. This stock trades at significant discounts to the industry average, with a 20x forward PE compared to a 30x industry average. The price to book of 1.5x might interest value investors, especially when the industry average for that metric is a healthy 6.5x. When talking price to sales, the 2x industry average seems rather fair for a retailer, but SVCL trades at only 0.5x sales. The lower valuation could be due to the lack of growth, as revenue and earnings growth expectations are both well below the industry average. Add on to that substandard margins (2.5% net margin for SVCL vs a 3.7% industry average) and you begin to see what there is a stunted series of multiples for this stock.

The price and consensus chart shows that SVCL is starting to turn things around. Following the recent beat, estimates have kicked higher for this year and next. This stock is one to keep track (and field) of.

Retail is a tough environment, and even though oil prices are lower, that doesn't mean that consumers will be buying more shoes. That said, the trend has been a very positive one for these stocks and Foot Locker (NYSE:FL-Free Report) as well. As a Zack Rank #2 (Buy) this retailer has a beautiful looking price and consensus chart.

Finally I would like to point out Finish Line (Nasdaq:FINL-Free Report) - not because it's a Zacks Rank #3 (Hold), but because it is reporting earnings at the end of next week (Dec 19).

If the broad strength in the footwear industry continues, it would not be surprising to see a number of these stocks remain Zacks Rank #1's or #2's as long as estimates keep sprinting higher.

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