Under Armour Analysts On Q3: 'All-Clear Signal Is Far From Here'

Under Armour Inc (NYSE:UAA)(NYSE:UA) shares were trading higher Monday after the company reported better-than-expected third-quarter earnings last week — and said its full-year numbers won’t be as bad as previously feared.

Under Armour reported third-quarter adjusted EPS of 26 cents on $1.43 billion in revenue. Both numbers exceeded analyst estimates of 3 cents and $1.16 billion, respectively. Revenue was flat year-over-year. 

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Under Armour also said full-year sales will be down by a high teen percentage rate, a slight improvement over the 20% to 25% decline it previously forecast.

Finally, Under Armour announced the sale of its MyFitnessPal workout platform for up to $345 million.

Several analysts weighed in on Under Armour following the earnings beat.

Under Armour Turning The Corner? Wedbush analyst Christopher Svezia said Under Armour’s business seems to be trending in the right direction heading into 2021, but the long-term outlook for its brand remains uncertain.

“While the near-term is benefiting from industry tailwinds, work remains to be done to restore brand heat and drive sustainable sales growth at full price in the medium to long-term,” the analyst said. 

Stifel analyst Jim Duffy said Under Armour’s balance sheet improvements, cost-cutting measures and revenue stability are a sign the company has turned a corner.

“Greater confidence stems from improved quality of revenue (DTC growth and off-price to 4% in 2020), sightlines to revenue inflection in 2021, gross margin drivers from mix and a streamlined expense base pointing to opportunity for earnings leverage,” he said.

Raymond James analyst Matthew McClintock said Under Armour is finally ready to go back on offense after three years of playing defense.

“Management's comment that it fully expects to grow in North America even despite a reduced wholesale footprint should stand out as the single most important inflection point towards this entire story as it ultimately plays out,” the analyst said. 

Challenges Remain For Under Armour: Under Armour’s transformation work will continue in 2021 and 2022, Needham analyst Rick Patel said in a note. 

“Looking ahead, we model 4Q sales (12.7%) vs guidance of a down low-teens%, which includes a 9%-point negative impact from a shift in wholesale order flows to early ’21 vs late ’19 last year,” the analyst said. 

KeyBanc analyst Matthew DeGulis said product innovation will be key to Under Armour’s long-term success, and he is encouraged by the company’s product pipeline.

"UAA’s topline beat was impressive, beating analyst estimates by nearly $300M—we think showing that UAA’s brand heat is starting to turn around."

Despite the positive third-quarter numbers, BTIG analyst Camilo Lyon said he is still concerned about the company’s ability to drive long-term profitable growth.

“While we applaud UAA for a solid Q3 against basement-level expectations, the all-clear signal is far from here,” Lyon wrote.

Under Armour Ratings, Price Targets:

• Wedbush has a Neutral rating with a price target increased from $10 to $13. 
• Stifel upgraded Under Armour from Hold to Buy and upped the price target from $11 to $17. 
• Raymond James has a Strong Buy rating and $20 target.
• Needham has a Hold rating.
• KeyBanc has an Overweight rating with a price target increased from $16 to $17. 
• BTIG has a Sell rating and $5 target.

Benzinga file photo by Dustin Blitchok.