Under Armour Inc. has used the tumultuous time during the COVID-19 pandemic to make long-term improvements to the business, BMO Capital Markets analysts say, driving an upgrade of the stock to outperform from market perform.
BMO raised its price target by $2 to $25.
BMO analysts led by Simeon Siegel note improved gross margins, with more growth possible. The athletic company has also found operational efficiencies after a period in which there was a “grow-at-all-costs mind-set.” And Under Armour
has been socking away cash, which could lead to stock repurchases and earnings per share growth.
“We are upgrading shares of Under Armour to Outperform as we believe the recent selloff overly minimizes Under Armour’s proactive use of a ‘COVID-Cover’ to refashion its business for the future, improving pricing power through brand elevation and expense structure through close scrutiny of prior spending,” BMO wrote.
Under Armour stock has fallen 6.8% over the past three months, though the stock has gained 4.8% over the past year.
The S&P 500 index
is up 1.1% over the past three months.
“With recent industry holiday updates and increasingly challenging compares weighing on the sector, we believe Under Armour represents one of the healthy brands thrown out with the bathwater.”
Under Armour stock was downgraded at Stifel in December, with analysts expressing concern about the potential for increased discounting.
See: Under Armour downgraded as athletic category faces vanishing stimulus cash and inflation heading into 2022
Under Armour was also initiated at neutral on Tuesday at Seaport Research Partners, with analysts drawing a connection between brand health and sales growth, particularly in North America.
“[W]hile North American sales have yet to get back to their CY16 peak, Under Armour has achieved strong profit improvement in recent quarters,” analysts wrote, noting that the brand is selling more merchandise at full price.
“We’re encouraged by Under Armour’s progress, but we’ve yet to see it really translate into true brand heat. Moreover, given supply chain challenges, Under Armour expects FY22 to get off to a slow start, slower than most of the other vendors we cover, which isn’t a good optic.”
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Under Armour’s analysis was part of a large report in which Seaport Research initiated the footwear and apparel category.
Among the brands with a buy rating are Nike Inc.
Ugg parent Deckers Outdoor Corp.
and Foot Locker Inc.
In addition to Under Armour, Boot Barn Holdings Inc.
Columbia Sportswear Co.
and Vans parent VF Corp.
are rated neutral.