Stifel 'Highly Encouraged' After Chat With Under Armour, Raises Price Target

Stifel's December 2017 upgrade of Under Armour Inc UAA was based on a "speculative thesis," but the sell-side firm's recent conversations with the apparel maker left analysts "highly encouraged."

The Analyst

Stifel's Jim Duffy maintains a Buy rating on Under Armour's stock with a price target lifted from $20 to $27.

The Thesis

Duffy's 2017 upgrade of Under Armour was based on the thesis that "rational minds would prevail" at the management level and a shift from "cavalier growth" to profitability would come soon, Duffy said in a Monday note. (See the analyst's track record here.)

Since December, the company has demonstrated the following, the analyst said:

• Operating efficiency.
• Rationalization of expenses.
• Prioritization of resources.
• A commitment to earnings.

Granted, only half a year has passed since the December upgrade, and any management-level changes are not yet evident in earnings reports, the analyst said. It is clear that "evidence is building" that Under Armour is taking all the right steps to improve its business, he said.

Coupled with an overall improvement in athletic apparel demand and healthy channel inventories, Under Armour's year-end margins will likely inflect, and margin improvement can continue next year and beyond, Duffy said. 

Given an improved confidence in Under Armour's ability to generate margin improvement, Stifel lifted its fiscal 2020 earnings per share estimate from 60 cents to 70 cents and said the potential exists for $1 per share in 2021. The firm's $27 price target is based on a 33x forward multiple on 2021 earnings power discounted by two years at 10 percent.

Price Action

Under Armour shares were trading up nearly 1 percent premarket Monday. <

Related Links:

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Photo courtesy of Under Armour.