Recent Analyst Actions: Under Armour and Gap



Updates of analyst actions on other apparel stocks

One day after Kate Spade’s upgrade, Under Armour (UA) and Gap (GPS) also came under analyst scrutiny. On September 13, 2016, Nomura initiated coverage of Under Armour (UA) with a “neutral” rating. The firm said in the note that “with industry-leading growth, it seems clear UA has an impressive runway ahead.” However, Nomura pointed out that the company’s potential is already “well understood” by the market, considering its high valuations.

Under Armour is now trading at 61x its next twelve months’ earnings. This compares to a one-year forward PE (price-to-earnings) ratios of 29x, 23x, and 20x for Lululemon Athletica (LULU), Nike (NKE), and Columbia Sportswear (COLM) as of September 13, 2016.

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Shares of Under Armour fell 2.4% on Tuesday. The company is looking at YTD (year to date) losses of 6.9% as of September 13, 2016, and is trading ~30% below its 52-week high price. The company has been assigned an average target price of $49.2, indicating an upside potential of 28.3% over the next twelve months.

ETF investors seeking to add exposure to UA can consider the SPDR Consumer Discretionary Select Sector ETF (XLY), which invests 0.32% of its portfolio in the company.

RBC Capital Markets’ take on Banana Republic

Gap’s (GPS) share price fell 3.3% on September 13, 2016, as a consumer study carried out by RBC Capital revealed Banana Republic’s declining popularity among Millennials and non-Millennials alike. According to the survey, 48% of Millennials and 53% of non-Millennials disliked shopping at Banana Republic.

According to TheStreet, after considering the results, RBC Capital Markets analyst Brian Tunick stated: “Our take is that traffic stabilization at this brand will be extremely hard to achieve given multiple years of fashion misses and pricing architecture issues. We think repairing Banana Republic will be a longer battle.” The analyst, however, maintained a “sector perform” rating on Gap.

Banana Republic reported a 10% fall in comparable same-store sales in August, making it the 14th straight month of negative sales comps.

Gap is trading ~30% below its 52-week high price and has seen YTD losses of 9.6%. Notably, Gap is included in the portfolio holdings of SPDR S&P Retail ETF (XRT), which invests 1.5% of its holdings in the company.


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