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What Analysts Have to Say About Under Armour After Investors Day

Under Armour Inc. (NYSE: UA) had its Investor Day on Wednesday, and the analysts have cast their votes. Overall the calls were fairly positive for this apparel company, while some might even consider Under Armour as an emerging tech company (that specializes in apparel).

According to Merrill Lynch, Under Armour’s Investor Day reiterated its powerful top-line outlook, with revenue now expected to reach $7.5 billion by 2018 from $3.1 billion in 2014, and compared to the firm’s prior forecast of $6.8 billion. The 25% revenue compound average growth rate (CAGR) will be fueled by roughly 50% international growth and 40% growth in footwear. Earnings per share (EPS) is expected to grow slightly below sales, as Under Armour makes investments in new categories/geographies, innovation, infrastructure, personnel and connected fitness to drive long-term growth. Merrill Lynch lowered its 2016 EPS estimate to $1.35 from $1.40, and its 2017 EPS estimate to $1.70 from $1.80, given the higher spending outlook. The firm has a price objective of $108.

Merrill Lynch said in its report:

We believe UA is poised to become a leading global athletic brand and believe, long term, UA could triple in revenues through: (1) growth in core apparel through continued market share gains, (2) continued expansion in direct to consumer, (3) expansion in athletic footwear, and (4) international acceleration.

Credit Suisse was particularly impressed with the company’s use of its basketball business and particularly the relationship with Stephen Curry as a lever to become more relevant in footwear and international markets. The firm views this as crucial for a business trying to sustain 20%-plus top-line growth for another three years to reach its revenue target, suggesting 25% revenue and EPS CAGRs from 2014 levels.

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Under Armour announced that it is going to enter the sportswear category, a market that represents up to 25% of the apparel businesses of Nike and Adidas, but none of Under Armour’s. The goal is to launch the category in 2016, with meaningful scale generated in 2018 and 2019. While this move makes strategic sense, Credit Suisse believes the emphasis of casual wear adds some risk of brand dilution, and the firm will be monitoring the company’s choice of launch retailers and entry into this category carefully going forward.

As a result, Credit Suisse has a Neutral rating. Valuation for the stock is well outside of historical norms for growth brands at over 80-times forward price-to-earnings (P/E), and this keeps the firm on the sidelines.

Canaccord Genuity’s Camilo Lyon explained the firm’s rating and $105 price target in the report:

It is well understood that Under Armour’s multiple is difficult for most to look past; however as we have stated often, when presented with the vast growth opportunities across geographies, categories, channels, and now industries (e.g. technology and healthcare) as we were at yesterday’s Investor Day, it is clear that Under Armour has a long runway of elevated and outsized growth to justify the multiple. This was underscored by Under Armour’s 2018 targets that call for $7.5 billion in revenue (implying a 25% CAGR) and $800 million in EBIT (23% CAGR). It also puts Under Armour within striking distance of $10 billion in 2019, a milestone we have been speaking to and one we believe it is well positioned to reach. In looking across the retail universe, we see no other company with the strength of brand and underlying growth opportunities that Under Armour has and therefore, we are not daunted by the seemingly expensive multiple. We reiterate our Buy rating.

A couple other analysts weighed in as well:

  • Stifel has a Buy rating for the stock and raised its price target to $115 from $105.
  • FBR Capital Markets has an Outperform rating and raised its price target to $115 from $105.

Shares of Under Armour were up around 2% to $105.58 Wednesday morning, a new 52-week high. The 52-week low is $60.00. The stock has a consensus analyst price target of just $102.48.

By Chris Lange