Does Under Armour Stock Look Attractive At $18?

by Trefis Team
Under Armour
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[Updated: 10/11/21] UA Stock Update

Under Armour (NYSE: UA) released its Q2 report, wherein revenues came in 12% above and earnings per share (EPS) were a large 117% above our estimates. The company’s revenues grew a strong 91% year-over-year (y-o-y) to $1.35 billion, driven by an easy comparison to last year and a strong growth of 101% y-o-y to $905 million in North American sales. Its wholesale revenues increased 157% y-o-y to $768 million and direct-to-consumer revenue increased 52% to $561 million during the quarter. Apparels made 65% of the total revenues, while footwear contributed to 25% and the rest came from accessories in the second quarter. That said, the company’s Q2 2021 revenue was 13% above pre-pandemic levels from Q2 2019. UA’s gross margin increased 20 bps to 49.5% of sales compared to a year ago, driven primarily by benefits from pricing and changes in foreign currency, offset by channel mix, and the sale of the MyFitnessPal platform (which carried a higher gross margin rate). This, combined with ongoing expense management, led to diluted earnings per share of 13 cents (vs. our $0.06 expectations).

Under Armour’s management also raised its revenue outlook for 2021 to a low-20s percentage y-o-y increase, replacing the previous high-teen increase guidance. The GAAP earnings per share forecast was also raised to range between $0.14 to $0.16, replacing the previous guidance of $0.02 to a loss of $0.04. The company also sees full-year adjusted EPS of $0.50 to $0.52 vs. the $0.28 to $0.30 prior view. We have updated our model following the fiscal Q2 release. We now forecast Under Armour’s Revenues to be $5.3 billion for fiscal 2021, up 23% y-o-y, compared to a prior forecast of a 13% y-o-y growth in revenues. We also expect EPS to come in at $0.15, up from a loss of $1.21 last year, compared to our prior estimate of only $0.01. Given the changes to our revenues and earnings forecast, we have revised our Under Armour’s Valuation at $23 per share, based on $11.71 expected revenue per share (RPS) and a 2x P/S multiple for fiscal 2021 – 30% higher than the current market price. We believe UA stock appears cheap at the current market price of around $18.

[Updated: 08/02/21] UA Q2 Pre-Earnings

Under Armour (NYSE: UA), a sports equipment company that manufactures footwear, sports, and casual apparel, is scheduled to report its fiscal second-quarter results on Tuesday, August 3. We expect Under Armour stock to trade higher post-fiscal Q2 2021 results with revenues likely coming in line and earnings beating consensus. After struggling in 2020, the company reported strong first-quarter earnings signaling that a turnaround was in motion. The upswing in performance caught the market off-guard as earnings per share (EPS) of $0.16 and revenue of $1.26 billion easily exceeded the $0.04 and $1.12 billion forecasts. The company is working on a multi-pronged approach that includes broadening its appeal in popular categories like running, relaunching an improved North American digital channel, implementing supply constraints to better align distribution with demand, and a restructuring program.

Our forecast indicates that Under Armour’s valuation is $21 a share, which is 18% higher than the current market price of around $18. Look at our interactive dashboard analysis on Under Armour‘s Pre-Earnings: What To Expect in Q2? for more details.

(1) Revenues expected to be in line with consensus estimates

Trefis estimates UA’s Q1 2021 revenues to be around $1.21 Bil, in line with the consensus estimate. In 2020, the athletic apparel company’s revenues declined 15% year-over-year (y-o-y) to $4.5 billion, largely due to a 25% drop in wholesale revenues.  It should be noted that the pandemic certainly magnified the company’s digital adoption rates, which led to e-commerce growing 40% in 2020. This digital momentum continued into Q1 with the e-commerce channel generating 69% growth – thanks to improved personalization capabilities. To add to this, the North American business rebounded with a 32% increase in sales in Q1. Consequently, Under Armour’s revenue forecast was lifted to a high-teen percentage y-o-y increase, replacing the previous high single-digit increase guidance in fiscal 2021.

2) EPS likely to be higher than the consensus estimates

UA’s Q2 2021 earnings per share (EPS) is expected to reach 6 cents per Trefis analysis, 24% higher than the consensus estimate. Despite a 140-basis-point improvement in gross profit margins (48.3%), a 3% reduction in selling, general, and administrative expenses, and the $179 million sales of its MyFitnessPal platform – UA’s bottom line slipped into a loss in 2020. However, the company became profitable again in Q1, with $78 million in net income, or $0.17 in earnings per share. Going forward, the company expects earnings to come between $0.02-to-$0.04 loss in fiscal 2021, replacing the previous guidance of a loss of $0.18 to $0.20. As part of the company’s restructuring plan set in place last year, Under Armour has already taken a pre-tax charge of $450 million out of the projected $550 million to $600 million. It expects to recognize another $35 million to $40 million in Q2, which will still pressure the bottom line. While Under Armour still has plenty of work ahead, it’s in a better competitive place right now.

(3) Stock price estimate higher than the current market price

Going by our Under Armour’s Valuation, with a revenue per share (RPS) estimate of around $10.72 and a P/S multiple of 1.9x in fiscal 2021, this translates into a price of $21, which is 18% higher than the current market price of around $18.

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