Under Armour Willing To Forego Near-Term Margins For Long-Term Success

D.A. Davidson believes Under Armour Inc UA is ready to forego margins in the near term if it would help achieve long-term success. The firm thinks that in an uncertain market, the company is aiming to boost its share through investments. The comments come on the heels of the sportswear company reporting an earnings beat and a reiteration of the 2016 outlook.

Analyst Andrew Burns thinks that if Under Armour succeeds in its objective, it could translate into long-term EPS power. Aside from that, he sees sustainable improvement of the brand.

In a research note, the brokerage said, "While we are frustrated with the material reduction in earnings power for 2017–2018, we believe shareholders will be rewarded as UA's international, footwear and DTC growth initiatives increase the potential for global success. While valuation remains optically high on this estimate reset, we view the current $13.4 billion market cap as well below UA's long-term potential."

Following the changes in tactics, the analyst expects EPS of $0.25 on revenue of $1.406 billion for the fourth quarter. Burns expects the company to deliver EPS of $0.67 on revenue of $6.06 billion for the year 2017 and $0.77 EPS on $7.494 billion revenue for the year 2018.

Additionally, the brokerage slashed its target price on the stock by $10 from $52 to $42, implying an upside potential of more than 25 percent from current levels. However, the firm reiterated its Buy rating on the stock.

At last check, Under Armour was down 2.13 percent at $32.19.