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Stifel maintains Buy on Under Armour stock

EditorAhmed Abdulazez Abdulkadir
Published 18/04/2024, 17:12
© Reuters

On Thursday, Stifel reaffirmed its Buy rating and $11.00 price target for shares of Under Armour (NYSE:UA), Inc. (NYSE:UAA). The firm's analysis follows the return of company founder Kevin Plank to the roles of President and CEO. Despite the challenges in the turnaround efforts, particularly in the North American market, Stifel highlighted the company's strong balance sheet, which includes over $1 billion in cash as a significant positive factor.

Stifel's commentary pointed out the current skepticism among investors, as evidenced by Under Armour's valuation, which is at the lowest within the firm's coverage, at 5.7 times enterprise value to earnings before interest, taxes, depreciation, and amortization (EV/EBITDA) and 0.4 times enterprise value to sales (EV/S) based on the calendar year 2024 estimates (CY24E).

Nonetheless, the financial institution sees the company's cash position as providing attractive optionality, especially for value-oriented investors, which could potentially include private equity interest.

The firm explored three potential scenarios for the sports apparel company, considering Plank's dual objectives of economic interest maximization and legacy protection. Among the options discussed, a leveraged buyout (LBO) to take the company private was considered. However, Stifel suggested that Plank's interests might be better served by borrowing funds to repurchase shares in the public market.

According to Stifel's projections, with conservative growth estimates, appropriate gearing (net leverage maintained at 1.5 times or lower), and multiple assumptions, there is a pathway for Under Armour to achieve over 28% annualized returns over a five-year period. This outlook assumes that Plank will choose to engage in share repurchases rather than pursue other strategic alternatives.

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