Renaissance Technologies is one of the most successful hedge funds of current times founded by Jim Simons (Trades, Portfolio). The firm employs complex mathematical models to analyze and execute trades, many of them automated. Renaissance uses computer-based models to predict price changes in easily traded financial instruments. These models are based on analyzing as much data as can be gathered, then looking for non-random movements to make predictions.
Last quarter, the firm increased its position in Foot Locker (FL, Financial) by buying 421,225 shares. As of March 31, 2015, Renaissance Technologies was holding 594,108 shares of the company. Foot Locker is a leading global retailer of athletically inspired shoes and apparel, operating 3,423 primarily mall-based stores in the United States, Canada, Europe, Australia,and New Zealand as of January 31, 2015.
The company has seen good earnings growth over the last five years, and its sales increased from $5.05 bn in 2010 to $7.15 bn in 2014. During the same period, its EPS more than tripled from $1.08 to $3.61. Going forward, analysts are expecting the company to post an EPS of $3.99 in 2015 and $4.41 in 2016. Analysts' opinion is overwhelmingly bullish on the company with 15 out of 22 analysts rating the company Buy.
The company recently posted strong Q1 results topping consensus estimates by a cent. However, the stock corrected as some investors were worried because of the weakness in basketball market last quarter. Deutsche Bank analyst Paul Trussell believes that fear about a slowdown in basketball provides an opportunity to buy shares at a discount. In his latest research report, he said that a modest industry slowdown in the basketball category was more than offset by casual and fashion athletic sneakers. This is an indication of Foot Locker’s ability “to smartly manage inventory and continue to take advantage of whatever athletic trend has emerged.” According to the analyst, “FL will drive double-digit earnings growth for the next few years. Unwarranted fears about a slowdown in the sneaker cycle, or more specifically basketball, provide an opportunity to own FL shares at a discount.”
Foot Locker is trading at a forward PE of 14.39 and has a dividend yield of 1.60%. The company is doing a good job in terms of returning cash to shareholders. Last quarter, it repurchased 2.3 million shares for approximately $129 million and paid another $35 million as dividends. I believe Foot Locker is a good Buy given its high growth rate and reasonable valuations.
