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Wells Fargo Upgrades Under Armour to ‘Outperform’

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Dec. 4 2020, Updated 10:53 a.m. ET

Price movement

Under Armour (UA) has a market cap of $15.6 billion. It rose by 1.3% to close at $38.28 per share on October 10, 2016. The stock’s weekly, monthly, and year-to-date (or YTD) price movements were -0.91%, -0.21%, and -5.0%, respectively, on the same day.

UA is trading 1.2% below its 20-day moving average, 4.0% below its 50-day moving average, and 4.1% below its 200-day moving average.

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Related ETF and peers

The Schwab US Broad Market ETF (SCHB) invests 0.05% of its holdings in Under Armour. The ETF tracks a cap-weighted index that measures the largest 2,500 stocks in the US. The YTD price movement of SCHB was 7.3% on October 10.

The market caps of Under Armour’s competitors are as follows:

  • Nike (NKE): $87.3 billion
  • Skechers USA (SKX): $3.6 billion
  • Columbia Sportswear (COLM): $4.0 billion

Under Armour’s rating

On October 10, 2016, Wells Fargo upgraded Under Armour’s rating from “market perform” to “outperform.” It also raised the stock’s price target range to $44 and $46 from $38 and $42 per share.

TheStreet reported, “‘Noise’ from Sports Authority’s bankruptcy earlier this year is dwindling, and Under Armour’s distribution expansion could benefit sales during the next 12 to 18 months, Wells Fargo wrote in a note cited by TheFly.”

TheStreet added, “Under Armour’s inventory levels are improving, and the company’s growth prospects remain intact heading into next year.”

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Performance of Under Armour in 2Q16

Under Armour reported 2Q16 net revenue of $1.0 billion, a rise of 27.7% over $783.6 million in 2Q15. Revenue from its Apparel, Footwear, Accessories, Licensing, and Connected Fitness segments rose 18.9%, 58.0%, 21.3%, 16.0%, and 73.3%, respectively, between 2Q15–2Q16. The company’s gross profit margin and income from operations fell 1.4% and 39.3%, respectively.

UA’s net income and EPS (earnings per share) of Class A and Class B common stock fell to $6.3 million and -$0.12, respectively, in 2Q16 compared to $14.8 million and $0.03, respectively, in 2Q15. It reported EPS of Class C common stock of $0.15 in 2Q16 compared to $0.03 in 2Q15.

Under Armour’s cash and cash equivalents fell 6.7%, and its inventories rose 38.8% between 4Q15–2Q16. Its current ratio fell to 2.6x, and its debt-to-equity ratio rose to 0.93x in 2Q16 compared to 3.1x and 0.72x, respectively, in 4Q15.

Projections

Under Armour (UA) made the following projections for 2016:

  • net revenue of ~$4.9 billion
  • operating income of $440 million–$445 million
  • interest expense of ~$32 million
  • effective tax rate of ~36.5%
  • ~448 million fully diluted weighted average shares outstanding

In the next part of this series, we’ll look at Molson Coors Brewing (TAP).

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