Under Armour (UAA) stock surged 5.8% as of 3:19 PM ET today as Raymond James upgraded it to a “strong-buy” from “outperform.” As per The Fly, Raymond James’s analyst agrees with Under Armour’s risk-to-return profile. Raymond James also retained its price target at $30. This estimate implies upside potential of 67% in Under Armour stock.
Under Armour and the impact of the SEC investigation
Under Armour stock declined 18.9% on November 4. Investors were spooked with the news that the Justice Department and SEC are investigating the company’s accounting practices. The regulatory bodies are examining whether the footwear and apparel maker inflated its quarterly sales numbers. News of the investigation offset the company’s better-than-expected third-quarter results.
However, after interacting with investors, Raymond James believes the SEC investigation might not have as major an impact on the stock as initially anticipated.
Will the holiday season improve sales?
Under Armour’s third-quarter revenue declined about 1% year-over-year to $1.43 billion. A 12% decline in the company’s footwear sales more than offset a 0.7% rise in apparel sales and a 1.7% increase in accessories sales. The company’s revenue from the North America region also declined about 4%. Meanwhile, international sales grew 5%. Intense competition from rivals Nike (NKE), Lululemon (LULU), and Adidas is taking a toll on Under Armour’s performance.
Under Armour’s adjusted EPS rose 35.3% year-over-year to $0.23. A 220-basis-point expansion in the gross margin and lower interest expenses benefitted Under Armour’s earnings. Analysts expected revenue of $1.41 billion and EPS of $0.18.
For the fourth quarter, which includes the holiday season, analysts predict revenue to grow 5.6% to $1.47 billion. They expect EPS to rise 11.1% to $0.10. Faster delivery, improved traffic, and conversion, as well as new stores, are expected to boost Under Armour’s direct-to-channel business in the fourth quarter.
Athletic apparel maker Lululemon will announce its fiscal 2019 third-quarter results on December 11. It reported an impressive 22.0% rise in its second-quarter revenue. Analysts now estimate a 20% rise in Lululemon’s third-quarter revenue. They also predict a 13.2% rise in its fourth-quarter revenue.
Nike is also expected to announce its fiscal 2020 second-quarter results in December. Analysts expect a 7.4% rise in its second-quarter revenue. The footwear giant’s first-quarter revenue rose 7.2% on the strength of its direct-to-consumer business, including digital revenue.
Will UAA stock bounce back?
Under Armour stock was up 1.8% year-to-date as of November 26. Moreover, it lagged the 25.9% and 83.2% year-to-date rise in Nike and Lululemon stocks. Currently, four out of 29 analysts have a “strong-buy” rating and four have a “buy” recommendation. Meanwhile, 17 analysts believe that the stock is a “hold” while four have a “sell” rating.
With an average price target of $20.65, analysts see an upside potential of 9% in Under Armour stock over the next 12 months.
Investors will be closely watching the company’s strategic initiatives under the leadership of COO Patrik Frisk, who will assume the role of the new CEO of the company, effective January 2020. Frisk would succeed Under Armour’s founder, Kevin Plank.