Deutsche Bank Favors Under Armour Given Athletic Sector Momentum

October 6, 2014 12:36 PM | 1 min read | Make a Comment
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Dave Weiner of Deutsche Bank believes that shares of Under Armour UA have momentum despite valuation concerns given how hot the athletic sector market has performed as of late. “Nike's NKE recent 1Q report highlighted that the athletic apparel and footwear sector is likely seeing a positive inflection, while ‘the rest' of soft retail struggles,” Weiner wrote in a note to clients on Monday. Recommended: Athleisure Wear Fad A Rapidly Growing, But Crowded Space According to Weiner, Nike's recent first quarter results suggests “incremental sector acceleration” and that the momentum in the athletic apparel and footwear sector “should continue for some time.” In fact, the analyst notes that Nike's results have shown that athletic apparel and footwear is one of the few sectors that benefit from pricing power, a trait that bodes well for competitors like Under Armour. Weiner notes that Under Armour continues to benefit from unit growth as it broadens out its Running assortment. The analyst adds that Under Armour's promotions are “in good shape” with the company's promotional activities “very stable, and in fact, likely decreased” since the company's last earnings report on July 24. Bottom line, Under Armour's manufacturing innovation in footwear is “under-appreciated” and that while shares may appear to trade at a high valuation, when framed by revenue growth, shares are trading at a six times multiple, in-line with the broad industry. The analyst believes that Under Armour has a “meaningfully” higher EBIT growth profile. Weiner raised his third quarter EPS estimates to $0.41 from a prior $0.38. Full year fiscal 2015 EPS has also been raised to $1.20 from $1.16. Shares were reiterated with a Buy rating and $78 price target.
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