Morgan Stanley's Taiwan Team: Selloff In Under Armour Suppliers Is An Overreaction

Under Armour UA has problems, but its Taiwan suppliers will likely not be impacted as much as the market seems to think.
 

According to Morgan Stanley analyst Terence Cheng, the recent sell-offs in Under Armour suppliers Eclat, Makalot and Toung Loong Textile are overreactions to potentially softening Under Armour sales growth.
 

“While we understand Tiawanese textile suppliers’ share prices tend to correlate with global branded customers’ performance/share prices, we believe Taiwanese companies’ diversification of customers and product offerings should not be viewed the same as iPhone suppliers that fundamentally concentrate on single customer/single product,” Cheng explains.

Related Link: Under Armour's Problems Are Far More Serious Than Spieth: Morgan Stanley Is Worried About What New SportScan Data Shows
 

Yesterday, Morgan Stanley analyst Jay Sole reiterated his bearish thesis on Underweight-rated Under Armour, highlighting slowing growth in women’s apparel and a “soft” running foorwear market. 

While these trends are bad news for Under Armour suppliers, Cheng assures investors that their exposure is limited. Morgan Stanley estimates Eclat’s sales exposure at mid-single-digits, Makalot’s at low-single-digits and Toung Loong’s at only about 1.0 percent.

For Under Armour shareholders, Sole says that the goal is currently for the company to offset a weakening domestic market via international expansion. He forecasts 70 percent international sales growth from Under Armour in Q1, but maintains a split-adjusted $32 price target on the stock based on U.S. weakness.

Disclosure: the author holds no position in the stocks mentioned.