Baird Defends Under Armour After Disappointing Q3

Baird reduced its price target on Under Armour Inc UA shares from $55 to $40 despite defending the company's brand strength. However, the firm maintained its Outperform rating on the stock.

Analysts Jonathan Komp and Benjamin Bray defended the additional spending for marketing or endorsements to gain bigger opportunity. They believe that such investments are necessary and cited that the brand enjoyed its weight. This leads to a EBIT margin compression from the previously estimated 10 percent to 7.6-8 percent range in 2018.

The brokerage expressed its disappointment in the resetting profit targets for the year 2018. However, the firm said in a note, "Importantly, we believe UA is making the right decisions to prioritize long-run scale/share opportunities, and following the one-time step-up in spending, normalized investment after 2018 should support improved FCF, ROIC, and margin (no structural barriers to mid-teens)."

Pointing out that Under Armour delivered 20 percent top line growth in the last 6 1/2 years, Baird thinks there is no change in the brand fundamentals health.

The brokerage thinks the concerns are purely in the short-term nature and that the long-term prospects are intact. Therefore, the firm didn't want to penalize a company that has a strong brand momentum.

At last check, the stock dropped 2.68 percent to $32.01.