Investors are newly upbeat about Under Armour — keeping its shares in the green throughout the trading day Friday — after one market watcher signaled that the previously beleaguered athletic brand is primed for its comeback.
JPMorgan analyst Matthew Boss today upgraded the Baltimore-based label’s stock — for the first time in nine months — from neutral to overweight and lifted his price target to $29, from $23 (well above the consensus average of $22). After trending positively all afternoon, UA’s stock ended the day up nearly 8% to $23.58.
Appearing on CNBC’s “Fast Money Halftime Report,” Boss said following a meeting at Under Armour’s Baltimore headquarters this week, he left with the impression that “the fire seems to be back” for the company.
Among the positive developments at the brand, Boss pointed to recent hires such as president and COO Patrik Frisk as well as changes in the firm’s product pipeline and distribution.
“They rationalized SKUs by 50%, they’ve cut their vendor base by 30%, [and] they’ve shortened the lead times by 25%,” Boss said. “They’re overhauling the marketing heading into next year, and we expect the new product to match the inventory reduction of 24%, and so you see more full-price selling with the expense base rationalized.”
He added, “As you look at the next two years, we see a tremendous amount of earnings power. And over the next five, it translates to a 40% earnings growth on average.”
Under Armour’s stock also popped this month when it reported first-quarter earnings expectations and signaled that some of its aggressive turnaround efforts are taking hold.
On May 2, Under Armour announced that it had reversed its year-ago losses to post Q1 profits of $22.5 million, or 5 cents per diluted share, topping the loss of 1 cent per share analysts had predicted. Its sales also advanced 2% to $1.2 billion, beating out the $1.19 billion market watchers expected.
Still, amid heightened competition from Nike and Adidas, as well as retro labels Champion and Fila, some analysts had suggested the brand still has its work cut out for it in North America. In Q1, Under Armour’s sales in the region dipped 3% to $843 million.
Boss, however, noted that he sees successes at industry leader Nike serving to benefit Under Armour by fueling overhaul momentum for the industry.
“When Nike catches a cold, Under Armour is going to catch the flu,” Boss said, noting that he sees potential for UA in the $92 billion athletic-focused performer market of which Under Armour makes up roughly 5%. (UA told investors in December that it plans to pivot its business toward the “focused performer.”)
Overall, it seems analysts are becoming more optimistic about Under Armour’s revamped go-to-market strategy: “UA’s restructuring efforts and brand positioning around the ‘focused performer’ is paying dividends in the form of improving gross margin trend and expense management,” wrote Cowen & Co. analyst John Kernan this month. (Kernan also raised his price target to $23, noting improving innovation in footwear and apparel, along with improved full-price selling.)
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