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Tickers in this Article: FINL, NKE, GCO, FL, HIBB
Athletic gear retailer Finish Line (Nasdaq:FINL) has been criticized recently over its weak market results, especially when compared to Nike's (NYSE:NKE) big earnings. Investors dropped the stock 9.2% the day after its earnings announcement. On the surface, it's hard to argue with investor logic. However, if you look a little closer, you'll see that Finish Line is still in the running.

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Analysts be Damned
Nike's first-quarter earnings estimate was $1.01 a share, based on an average of 15 analysts. It delivered EPS of $1.14, 13 cents better than the average estimate and 10 cents higher year-over-year. Finish Line, on the other hand, had a second-quarter estimate of 35 cents a share, according to eight analysts.

It delivered EPS of 31 cents, that's 4 cents worse than the average estimate but 10 cents higher than the same quarter a year earlier, which included a 23 cent loss on the sale of its Man Alive stores. There are several problems with this picture: First off, analysts had to know Nike was having a strong first quarter. Yet their estimate of $1.01 was 3 cents lower than last year's quarter - which is a little difficult to understand. The estimate should have been higher than $1.04. Let's say the realistic estimate was $1.06. This would mean a 7.5% positive surprise instead of the 13% reported. That's not nearly as impressive, although still good in this economy. As for Finish Line, it's hard to understand why analysts would think it would increase its earnings when Nike's were expected to decrease. With earnings-per-share before one-time losses of 21 cents in Q2 2009, I'm having a hard time understanding analysts' 35-cent estimate.

Second-Quarter History
If you look at Finish Line's Q2 income statements for the last six years, you'll notice a few things. For instance, its latest quarterly earnings were the second highest at 31 cents a share, compared to 38 cents in 2005. However, the 2005 figure doesn't include 6.5 million shares it issued to Genesco in March, 2008 as part of the settlement in its aborted takeover of the Tennessee-based company. Add those in, and the difference is only two cents a share. Although its revenues in Q2 2010 were $40 million less than 2005, its operating margin of 9% was higher. Topping this off, same-store sales in Q2 were up 2% year-over-year, are up 6.1% year-to-date and third quarter revenues are also doing well. This isn't the portrait of a company in turmoil. In fact, it's rarely been healthier.

Finish Line and Peers
Company
P/CF 2010
P/CF 2005
Earnings Yield
Finish Line (Nasdaq:FINL)
5.1
9.6
8.1%
Nike (NYSE:NKE)
12.4
15.0
4.8%
Genesco (NYSE:GCO)
6.2
10.6
5.9%
Foot Locker (NYSE:FL)
7.1
10.4
3.3%
Hibbett Sports (Nasdaq:HIBB)
12.9
18.6
5.7%
Bottom Line
Value investors can thank analysts for delivering an early Christmas present. With almost $5 a share in cash and no debt, you can now buy a dollar's worth of Finish Line earnings at less than $10 a share. Act now before it's too late. This deal won't last. (To learn more, see How To Evaluate The Quality Of EPS.)

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