Will Under Armour Stock See Higher Levels Following Its Q4?

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Under Armour

Under Armour (NYSE: UA), a sports equipment company that manufactures footwear, sports, and casual apparel, is scheduled to report its fiscal fourth-quarter results on Friday, February 11. We expect Under Armour stock to trade higher post-fiscal Q4 2021 results with revenues and earnings likely beating consensus. After struggling through most of 2020, the company has signaled that its turnaround is in motion during the nine months of fiscal 2021. The company is seeing higher consumer demand and has implemented several changes including a substantial restructuring plan that is helping significantly toward margin improvements. Looking ahead, UA’s management expects revenue to surge 25% year-over-year (y-o-y) for the full-year 2021, compared to its previous estimate of a low-twenties percentage increase. The company also lifted its forecast for adjusted operating income and earnings per share to $475 million and $0.74, respectively, up from prior ranges of $340 million to $350 million and $0.50 to $0.52.

Our forecast indicates that Under Armour’s valuation is $21 per share, which is 20% higher than the current market price. Look at our interactive dashboard analysis on Under Armour‘s Earnings Preview: What To Expect in Q4? for more details.

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(1) Revenues expected to be slightly ahead of consensus estimates

Trefis estimates UA’s Q4 2021 revenues to be around $1.52 Bil, slightly higher than the consensus estimate. In Q3, Under Armour’s revenue rose 8% y-o-y to $1.5 billion, fueled by strong growth in international markets. The gains were broad-based, with wholesale revenue rising 10% y-o-y to $911 million and direct-to-consumer sales growing 12% y-o-y to $604 million. We now forecast Under Armour’s Revenues to be $5.5 billion for fiscal 2021, up 28% y-o-y.

2) EPS likely to be higher than the consensus estimates

UA’s Q4 2021 earnings per share (EPS) is expected to reach 11 cents per Trefis analysis, comfortably beating the consensus estimate of $0.07. In 2020, Under Armour enacted a large restructuring plan involving charges of $550 to $600 million, including lease terminations, employee severance, asset impairments, and other costs. The restructuring plan was implemented to rebalance their cost base and to improve cash flow and profitability. That said, this plan and reduced discounting have helped the company improve its profitability in Q3. The company’s gross margin expanded by 3.1 percentage points to 51%, which combined with its revenue gains, drove a 42% y-o-y increase in adjusted operating income to $189 million. This led to 19% y-o-y growth in adjusted earnings per share to $0.31 in Q3.

It should be noted that while the company is not facing any issue in consumer demand, the pandemic has brought in issues with product availability and shipping costs. These could lead to short-term margin pressures for the company going forward.

(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 $12.21 and a P/S multiple of 1.7x in fiscal 2021, this translates into a price of $21, which is 20% higher than the current market price.

It is helpful to see how its peers stack up. UA Peers shows how Under Armour compares against its peers on metrics that matter. You will find other useful comparisons for companies across industries at Peer Comparisons.

What if you’re looking for a more balanced portfolio instead? Here’s a high-quality portfolio that’s beaten the market consistently since the end of 2016.

 Returns Feb 2022
MTD [1]
2022
YTD [1]
2017-22
Total [2]
 UA Return 9% -3% -31%
 S&P 500 Return 2% -4% 105%
 Trefis MS Portfolio Return 2% -8% 264%

[1] Month-to-date and year-to-date as of 2/9/2022
[2] Cumulative total returns since the end of 2016

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