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Abundant Long-Term Opportunity For Under Armour

Abundant Long-Term Opportunity For Under Armour
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Under Armour Gets No Love, Or Does It? (Seeking Alpha)

Under Armour Inc’s (NYSE: UA) 2H guidance appears fairly conservative and the next major catalyst for the stock would be the initial sales and EPS guidance for 2017, Cowen’s John Kernan said in a report. He maintained an Outperform rating on the company, with a price target of $46.

Meetings with management indicated that Under Armour’s CFO Chip Molloy believes there is “enormous opportunity” to improve product flow and working capital management. These could enable the company to become FCF positive within a few years, even with its capex at 9 percent of sales, Kernan mentioned.

International Opportunity

Molloy also expressed optimism regarding the brand’s opportunity in China, where it is working with ecommerce partners to broaden its reach. While Nike Inc (NYSE: NKE) and adidas AG (OTCMKTS: ADDYY) generate sales of $3.8 billion and $3 billion, respectively, in China, Under Armour generates less than $200 million, Kernan pointed out.

Related Link: Susquehanna Neutral To Bullish On Footwear Stocks

The analyst expects the company to record ~5 percent operating margin internationally in 2016, with “massive opportunity to expand operating margin globally.” He noted that Nike and adidas both generate operating margins of more than 30 percent in China and more than 25 percent in West Europe.

“As UA gains scale, there is no structural reason profitability can't reach similar levels. This will have powerful effects on margin expansion for the consolidated business, EBIT growth and cash flow growth,” Kernan wrote.

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Latest Ratings for UA

Jan 2017CLSAInitiates Coverage OnBuy
Nov 2016Stifel NicolausMaintainsHold
Oct 2016MizuhoDowngradesBuyNeutral

View More Analyst Ratings for UA
View the Latest Analyst Ratings

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