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Under Armour Preview: Will The Warm Winter Hurt Earnings?

Under Armour Preview: Will The Warm Winter Hurt Earnings?
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Wall Street analysts are cautious at best regarding Under Armour Inc (NYSE: UA)'s 2016 forecast. Under Armour is expected to report earnings before Thursday's market open. Consensus estimates call for EPS of $0.46 and revenue of $1.12 billion.

Morgan Stanley, Piper Jaffray, Brean and Deutsche Bank all recently lowered their price targets. Warm winter weather slows outerwear sales, excessive discounting and potential Sports Authority bankruptcy could slow growth.

Deutsche Bank

Deutsche Bank was bullish on Under Armour's prospects, offering the highest price target of analysts in this roundup at $95. Analysts Dave Weiner and Sindhu Chitturi maintained a Buy rating. However, they noted that uncertainty stemmed from slow outerwear sales through the warmer winter months and the company's chief financial officer transition as former PetSmart, Inc. (NASDAQ: PETM) CFO Chip Molloy moves into the Under Armour role.

The analysts expect management to reiterate its projected CAGRs of 25 percent for revenue and 23 percent for operating income. Weiner and Chitturi offered 2015 estimated EPS of $1.04 and 2016 estimated EPS of $1.35.

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Brean analysts shared Deutsche Bank's concerns about slack in outerwear sales, but expect satisfactory fall 2016 sales of Under Armour's new light jacket line.

Brean trimmed its price target to $84 and offered an EPS estimate of $1.04.

Piper Jaffray

Analysts Erinn Murphy and Christof Fischer were more bearish and showed concern for the fallout over a potential Sports Authority bankruptcy. The athletics retailer accounts for an estimated 4 percent of Under Armour's sales and last week missed a $343 million interest payment on its 2018 debt.

Jaffray offered a more pessimistic analysis than Wall Street, noting that the Street estimated $1.12 billion in sales as opposed to Jaffray's $1.09 billion estimate.

Murphy and Fischer lowered their price target from $88 to $64 and offered an estimated $1.28 EPS for 2016.

Morgan Stanley

Back on January 10, Morgan Stanley analysts Jay Sole, Joseph Wyatt and Edward Ryan offered a grim view of Under Armour's 2016 outlook. The firm downgraded the stock to Underweight and cut their target price nearly in half from $103 to $62.

Under Armour's footwear is discounted five times against the industry average, the analysts noted. This might hamper growth in the coming year. Under Armour's running shoe prices are down 20 percent from January 2013, while industry running shoe prices have only dropped 4 percent in that time.

Morgan Stanley also reiterated that Under Armour was offering too good a deal on their shoes, and recommended that Under Armour price its Steph Curry shoes more in line with Nike's premium basketball shoes.

Curry is as popular as players with Nike Inc (NYSE: NKE)'s exclusive deals like LeBron James, and even sells more jerseys than James, yet his Under Armour shoes are priced around $50-100 less than Nike's.

Latest Ratings for UA

Feb 2018JP MorganMaintainsNeutralNeutral
Jan 2017CLSAInitiates Coverage OnBuy
Nov 2016Stifel NicolausMaintainsHold

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