7 Reasons Wells Fargo Boosted Under Armour To Hold: 'We Believe The Worst Is Over'

A little over one year ago, Under Armour Inc UAA’s stock struck its five-year bottom. It’s gained a bit of steam since then, and one team of analysts expects a near-term leveling-out.

The Analyst 

Wells Fargo analyst Tom Nikic upgraded Under Armour from Underperform to Market Perform and raised its price target from $20 to $23.

The Thesis

Nikic said in the Friday upgrade note that he sees four factors working in Under Armour’s favor. (See his track record here.) 

• The Dec. 12 analyst day could bring a boost with a bullish outlook, including a 10-percent earnings-before-interest-and-tax margin, a bottom line exceeding $1 in five years and acceleration to double-digit revenue growth, he said. 
• Under Armour's clearance has declined year-over-year and strengthened marketplace inventory, the analyst said. 
• Most of the margin and earnings-per-share benefits from management restructuring are to be seen next year Nikic said. 
• The company is up against low Street expectations, as most analysts maintain Sells on the stock, he said. 

Taken together, these factors foster increasing optimism for the embattled retailer. 

“After two-plus years of choppy operating performance, we believe the worst is over for UAA, and simply put, the bear case appears to have run out of steam,” Nikic said. 

Wells Fargo remains sidelined by three perceived headwinds: it hasn’t yet seen U.S. demand inflection as the direct-to-consumer business continues to decelerate; the 2019 domestic business might have trouble demonstrating top-line growth given 2018’s off-price sales; and valuation appears to price in recovery prospects.

Price Action

Under Armour shares were up 1.86 percent at $23.57 at the time of publication Friday. 

Related Links:

Analyst: Under Armour Offers 'One Of The Strongest Absolute Return Opportunities'

Under Armour's Existential Crisis: Niche Player Or Global Competitor?

Photo by Dustin Blitchok.