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Citi maintains Neutral rating on Under Armour stock with $8 target

Published 08/02/2024, 21:12
Updated 08/02/2024, 21:12
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On Thursday, Citi reaffirmed its Neutral rating and $8.00 price target for Under Armour (NYSE:UA), Inc. (NYSE:UAA). The company's third-quarter earnings per share (EPS) of $0.19 exceeded the consensus estimate of $0.11, attributed to stronger gross margins and lower selling, general, and administrative expenses (SG&A). However, Under Armour's fourth-quarter guidance, ranging from $0.06 to $0.08, falls short of the expected $0.12, with projected sales declining 4-7% versus the consensus of a 3.5% drop.

The management highlighted additional challenges in the North American wholesale channel, noting weaker immediate orders and reorders. The broader athletic and activewear market in the United States is experiencing difficulties, with retailers being cautious about placing orders and an increase in promotional sales activities, despite inventories being in better condition. This cautiousness is partially attributed to a perceived lack of innovation within the market, except for a few key brands.

Under Armour's management indicated that pressures on the North American market could persist into fiscal year 2025, with current forecasts suggesting a 5% decline. The company is undergoing changes in product assortment under new leadership, but significant impacts from these changes are not anticipated until the fall/winter of calendar year 2025.

Despite the expected continued challenges in sales, Citi notes potential margin tailwinds for Under Armour, including product cost reductions, fewer promotions, and cost-cutting measures. These factors are believed to help limit the downside risk to EPS in the fourth quarter and fiscal year 2025. Based on the current market conditions, Citi believes the risk/reward profile for Under Armour is balanced.

InvestingPro Insights

Under Armour, Inc. (NYSE:UAA) has been navigating a turbulent market, with recent performance reflecting a mix of challenges and strategic maneuvers. According to InvestingPro data, Under Armour boasts a market capitalization of $3.37 billion, underlining its significant presence in the athletic apparel industry. The company's P/E ratio stands at a competitive 8.14, with a slightly adjusted P/E ratio of 8.08 over the last twelve months as of Q2 2024, suggesting a relatively undervalued stock in comparison to earnings.

InvestingPro Tips highlight that Under Armour operates with a moderate level of debt and has liquid assets that exceed its short-term obligations, indicating a stable financial position. Analysts predict that the company will be profitable this year, a sentiment supported by Under Armour being profitable over the last twelve months. However, it should be noted that the company does not pay a dividend to shareholders.

When considering Under Armour's stock price movements, which have been quite volatile, investors can look to the gross profit margin of 45.44% as a sign of underlying business strength. Revenue growth has been modest at 1.94% over the last twelve months as of Q2 2024, with a slight quarterly dip of -0.46%. Despite this, the company's operating income margin of 5.09% demonstrates its ability to maintain profitability amidst market fluctuations.

For those seeking a deeper dive into Under Armour's financial health and future prospects, InvestingPro offers additional insights. There are 5 more InvestingPro Tips available for Under Armour at Use coupon code SFY24 to get an additional 10% off a 2-year InvestingPro+ subscription, or SFY241 to get an additional 10% off a 1-year InvestingPro+ subscription, and explore the full range of analytical tools and expert opinions.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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