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Much has been made about the death of traditional retail, but several specialty stores have attempted to adapt to the changing times and are now showing signs of life. One of the strongest stocks in this space right now is Foot Locker, Inc. (FL - Free Report) .

Foot Locker is a leading global retailer of athletically inspired shoes and apparel. The company operates several notable chains, including Foot Locker, Champs Sports, Kids Foot Locker, and Footaction. Foot Locker also owns direct-to-consumer platforms like Eastbay.

The retail environment is still challenging right now, and investors are not flocking to Foot Locker based on the strength of its year-over-year growth. Instead, we see potential in the retailer’s digital investments and sense an opportunity to cash in on improved analyst sentiment. FL is currently sporting a Zacks Rank #1 (Strong Buy).

Latest Earnings and Outlook

Foot Locker most recently reported earnings on Nov. 17. The company’s better-than-expected third-quarter fiscal 2017 results gave a fresh breath of life to the stock, which in the recent past had struggled on account of sluggish performance in the preceding two quarters.

For the third quarter, Foot Locker reported adjusted earnings of $0.87 per share, beating the Zacks Consensus Estimate of $0.80. Total revenues came in at $1.87 billion, surpassing our consensus estimate of $1.84 billion. Direct-to-customer comparable sales increased 6.1% during the quarter.

Management announced that it expected overall comparable-store sales to decline in the range of 2% to 4% during the fourth quarter. This is not a particularly encouraging outlook, but it represents an improvement to the company’s recent performance and signals a possible trend reversal in the near future.

Foot Locker is expected to report its fourth-quarter results on March 3. Based on our current consensus estimates, we expect the company to post earnings of $1.24 per share and revenues of $2.22 billion. These results would represent year-over-year growth of -9.5% and +4.9%, respectively.

But analyst sentiment has improved recently. Foot Locker is currently sporting a Most Accurate Estimate of $1.28 per share, which is more than 3% better than its overall consensus estimate. The Most Accurate Estimate is a representation of the most-recent earnings estimates, so this shows that analysts are more optimistic about the company’s Q4 performance than they once were.

Earnings Estimate Revisions

We can also see that Foot Locker has witnessed strong upward estimate revisions for upcoming quarters. Our Zacks Consensus Estimate for Q1 earnings has moved 13 cents higher within the past 60 days on the back of strong analyst agreement. Meanwhile, the Zacks Consensus Estimate for Foot Locker’s full-year 2018 earnings has improved by 38 cents over that timeframe.

Foot Locker’s improved earnings outlook for its upcoming Q4 report is a great sign for investors looking to make a pre-earnings play right now, but its improved outlook for these upcoming periods also indicates that analysts are growing increasingly bullish about the company’s turnaround efforts in the long term.

Other Key Metrics

On top of its strong estimate picture, Foot Locker is also sporting an “A” grade for Value in our Style Scores system. The stock is trading at just 11x forward earnings, so investors are getting a decent price for its profits right now. FL also has a P/S of 0.73, meaning that it is also looking undervalued based on its revenue history.

Foot Locker shares have climbed about 14% over the past 12 weeks, but the stock is a long way off its 52-week high of $77.86. That gap should leave FL with plenty of room to run higher before its earnings report, and beyond.

Want more analysis from this author? Make sure to follow @Ryan_McQueeney on Twitter!

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