Under Armour To See More Gains?
After a 17% growth over the last month, at the current price of around $15 per share, we believe Under Armour’s stock (NYSE: UA), a sports equipment company that manufactures footwear, sports, and casual apparel – could see a further rise. UA stock has increased from $13 to $15 in the last month, outperforming the broader indices, with the S&P growing almost 7% over the same period. The athletic apparel company is benefiting from the ongoing turnaround as seen from its record financials in 2021. Its full-year 2021 revenues grew 27% year-over-year (y-o-y) to $5.7 billion and adjusted earnings grew to 85 cents from a loss of 26 cents in 2020. The company also saw an impressive gross margin at 50.3% for the full year. In addition, it has an incredible cash balance of $1.7 billion, placing the net cash position at a strong $1 billion. That said, Under Armour will have the ability to invest future cash flows possibly into stock buybacks with the cash balance. While the next few quarters could see headwinds of shipping congestion, supply chain issues, and the transition of the fiscal year to end in March – the longer-term gains look solid for the company.
In Under Armour’s Q4 report, its revenues came in line and earnings were higher than our estimates. The company reported Q4 revenues of $1.5 billion, up nearly 9% year-over-year (y-o-y). To break it down further, the retailer’s net revenue in North America climbed 15%, while international sales were up 3%. To add to this, e-commerce sales grew 4% from year-ago levels, representing 42% of Under Armour’s direct-to-consumer sales, with the remainder coming from the retailer’s brick-and-mortar stores. The company also logged a higher gross profit margin of 50.7% compared to the prior year, up 130 basis points, driven by benefits from pricing and restructuring charges in the prior year, offset by elevated freight expenses, the absence of MyFitnessPal, and an unfavorable product mix. The company’s adjusted earnings per share also grew 17% y-o-y to 14 cents in Q4 2021.
Under Armour announced that it was changing its fiscal year-end date from December 31 to March 31. The retailer is virtually skipping FY’22 with this March quarter in a separate period. Following a three-month transition period from Jan. 1, 2022, to March 31, the next fiscal year will run from April 1 to March 31, 2023. For the transition quarter, the company expects sales to rise in the mid-single-digit range. However, the company also pointed to rising freight costs and supply chain issues to pressure profitability – resulting in earnings per share falling between $0.02 and $0.03 in this first quarter compared to $0.17 a year ago. Under Armour said it will wait until May to provide a more detailed outlook for its upcoming fiscal year 2023.
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We have updated our model following the Q4 release. We forecast Under Armour’s Revenues to be $5.6 billion for the next fiscal year, down 2% y-o-y. Looking at the bottom line, we now forecast EPS to come in at 78 cents. Given the changes to our revenues and earnings forecast, we have revised our Under Armour’s Valuation to $20 per share, based on $0.78 expected EPS and a 26.0x P/E multiple for the next fiscal year – almost 28% higher than the current market price. That said, the current dip in UA stock could be used as a buying opportunity for better gains in the long run.
Here you’ll find our previous coverage of UA stock where you can track our view over time.
While UA stock looks poised for more gains in the future, it is helpful to see how its peers stack up. Check out how Under Armour’s Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.
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| Returns | Apr 2022 MTD [1] |
2022 YTD [1] |
2017-22 Total [2] |
| UA Return | -2% | -16% | -40% |
| S&P 500 Return | 0% | -5% | 102% |
| Trefis MS Portfolio Return | 0% | -8% | 262% |
[1] Month-to-date and year-to-date as of 4/7/2022
[2] Cumulative total returns since the end of 2016
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