Under Armor: A Promising Bet

Zacks Equity Research
March 20, 2014

Under Armour Inc. (UA) could prove to be a profitable bet for investors given the rise in the company’s stock price since it came up with outstanding fourth quarter and full year 2013 earnings. Additionally, the company has impressed investors by extending the sponsorship deal with U.S. Speedskating, expanding in Brazil and announcing a stock split.

Since the earnings release (Jan 30, 2014), the stock has garnered a return of nearly 16.5%. Recently, the stock hit a 52-week high of $124.79 on March 19, 2014, driven by the announcement of its two-for-one stock split, which was the second since the sports apparel retailer went public in Nov 2005. The first stock split took place in July 2012.

The company’s board of directors hinted that the additional shares in the form of a stock dividend will be distributed on April 14, 2014 to stakeholders of record on March 28, 2014. The principal aim behind the company’s stock split is to make its shares affordable to small retail investors.

Moreover, Under Armor clinched a strategic deal with U.S. Speedskating after the fiasco at the Sochi Olympics, in which the company’s state-of-the-art suits failed to meet expectations. With the Olympics controversy, it seemed that the company was heading towards a public relations debacle.

Instead, it made an impressive turnaround by renewing its contract with U.S. Speedskating to take the team through the next two Olympics, thereby restoring investor confidence. The Sochi debacle could have possibly dented its efforts at brand building but management’s prompt efforts saved the day.

Additionally, the company continued with its global expansion plans and launched the brand in the fast growing economy of Brazil.

Moreover, investors are optimistic about Under Armor’s continuous earnings streak. The company's fourth-quarter earnings per share of 59 cents surpassed the Zacks Consensus Estimate of 54 cents and increased considerably from 47 cents per share earned in the year-ago quarter. The better-than-expected results provided a further impetus to the stock, which on an average has delivered a positive earnings surprise of roughly 26.6% over the past seven quarters.

Needless to say, this Zacks Rank #2 (Buy) stock is firing on all cylinders and this growth momentum is expected to continue in 2014 and beyond, as reflected in an upbeat guidance. Under Armour projected 2014 net revenue in the band of $2.84 billion to $2.87 billion, up 22%–23% from the prior year. Moreover, it expects operating income between $326 million and $329 million, reflecting year-over-year growth of 23% to 24%.

This put together triggered an uptrend in the Zacks Consensus Estimate with estimates for 2014 moving up 3.4% to $1.89 and, for 2015, rising 3.6% to $2.33 over the last 60 days.

This Baltimore-based company currently trades at a forward P/E of 65.8x, significantly higher than its peer group. Also, its last traded price is roughly 20% above the Zacks Consensus average analyst price target of $101.80. Average volume of shares traded over the last 3 months stands at approximately 1,431.9K. The company’s long-term earnings per share (EPS) growth rate is 22.6%.

Other than Under Armor, Brown-Forman Corporation (BF.B), Kate Spade & Company (KATE) and Tyson Foods, Inc. (TSN) achieved 52-week highs of $89.85, $40.75 and $42.49 respectively, on March 19, 2014.

Read the Full Research Report on UA
Read the Full Research Report on BF.B
Read the Full Research Report on TSN
Read the Full Research Report on KATE


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