DA Davidson: Time To Buy Under Armour

In a report published Friday, DA Davidson analyst Andrew Burns upgraded the rating on Under Armour, Inc. UA from Neutral to Buy, while maintaining the price target at $91. The recent pullback in the stock, along with potential catalysts for 2H, offers an attractive investment opportunity in a stock with long term growth potential. The company's share price has declined 10 percent following the announcement of the 1Q results. During 2H, however, the analyst expects the company to revise its guidance upwards and unveil its digital health strategy during its analyst day in September. Both these events are likely to be positive catalysts for the stock. According to the DA Davidson report, "UA's 30 percent revenue CAGR since 2010 makes it the fastest growing athletic brand in a strong athletic cycle. This growth is providing valuable investment capital for long-term growth initiatives that will enable the company to maintain its 20-25 percent annual growth target for years to come." The analyst also believes that Under Armor's focused athlete sponsorship strategy, investments in digital health, a DTC focused sales mix and "disciplined footwear/international expansion" to help the company win market share away from its competitors. "High-valuation growth drivers are kicking into high gear. In 1Q, footwear and international growth represented half of UA's incremental revenue growth. After years of investment, these initiatives are taking root. We believe this is symbolic of an inflection point in UA's growth formula; in recent years, US sporting goods and DTC outlet stores were the primary contributors to growth," Burns added. Going forward, growth drivers for Under Armor are expected to shift to opportunities outside the US in the footwear category, along with distribution improvements in the US. These are all expected to drive earnings growth for the company and therefore provide upside potential to the stock.