Under Armour Inc (UA) We Think There Could Be a Buying Opportunity After Q4 Report � Upgrade from Hold to Buy; See a 52% return from current level.
Inventories the Main Risk for Q4 � Inventories were up 102% in Q3 due to the co�s anticipated demand for holiday and cold weather. While much of UA�s product can be sold full price in future seasons because there is not a high degree of fashion, there is downside risk if UA doesn�t report a cleaner inventory position when it announces Q4 results Jan.31st.
Channel Checks Indicate Solid Sell Throughs - Our store checks suggest that holiday sell-throughs were solid, with a lot of UA full price product selling at DKS especially in the week before Christmas. Markdowns were minimal. Other competitors have also indicated performance product was selling through well.
Stock At Lowest Level in 15 Mos � We think the mkt is likely pricing in inventory and US consumer risk with the stock trading at levels not seen since Oct 2006. UA�s P/E has declined 36% since the stock peaked in Aug 2007.
LT Thesis: Upgrading to Buy � Since there is some risk in Q4, investors could still capture upside after the co reports. UA is a great LT idea for 3 reasons: 1) the brand sells to a higher end consumer making it somewhat defensive in a weaker US economy, 2) there is significant growth potential from new categories and geographies, and 3) UA is a strong brand. Based on this, our estimates could be conservative as they are below historical growth rates and consensus.
US Outlook Remains Difficult � Despite possible positive long term results, UA�s stock could trade in tight range because of sentiment in group.
Buy/High Risk 1H from Hold/High Risk Price (11 Jan 08) US$42.65 Target price US$65.00 from US$66.00 Expected share price return 52.4% Expected dividend yield 0.0% Expected total return 52.4% Market Cap US$2,073M