Under Armour Inc.

Under Armour Inc. (NYSE: UAA) creates, markets, and distributes branded athletic clothes, footwear, and accessories for men, women, and children. North America, which includes the United States and Canada; Europe, the Middle East, and Africa; Asia-Pacific; and Latin America, which includes the United States and Canada.

Latest News

• On May 18, 2022, Under Armour, Inc. announced that Patrik Frisk will leave his position as President and Chief Executive Officer (CEO) and a member of the Board of Directors on June 1, 2022. Colin Browne, the company's Chief Operating Officer (COO), has been designated temporary President and CEO until a replacement is chosen, beginning June 1, 2022.
• On May 6, 2022, Under Armour, Inc. released unaudited financial data for the transition quarter ending March 31, 2022.

Key Takeaways from Q1 FY22 financial results

• In comparison to the previous year, revenue increased by 3% to USD1.3 billion (up 4% currency-neutral).
• Revenue from wholesale climbed by 4% to USD829 million.
• Direct-to-consumer sales rose 1% to USD441 million, owing to a 2% increase in eCommerce, which accounted for 45 percent of overall direct-to-consumer revenue in the quarter.
• During the quarter, sales growth at owned and operated stores was unchanged.
• In comparison to the preceding year, gross margin fell 350 basis points to 46.5 percent, owing to higher freight costs, while net loss was USD60 million, and adjusted net loss was USD3 million.
• At the conclusion of the quarter, the company's cash and cash equivalents were USD1.0 billion, with no borrowings outstanding under its USD1.1 billion revolving credit facility.

Outlook

• Revenue is forecast to rise 5 to 7% over the similar baseline period of USD5.7 billion, representing mid-single-digit growth in North America and low-teens growth in overseas operations.
• Due to predicted inflationary pressures on freight and product costs, unfavorable channel mix, and fluctuations in foreign currency, gross margin is estimated to be down 150 to 200 basis points from the baseline period's adjusted gross margin of 49.6%.
• Operating income is estimated to be in the range of USD375 to USD400 million, compared to USD424 million in the same baseline period.
• In comparison to the comparable baseline period of USD0.47, diluted profits per share is estimated to range between USD0.79 and USD0.84.

Key Risk

• Macroeconomic risk: Economic weakness or recession, significantly rising interest rates, fiscal or political uncertainty, market volatility, declining employment levels, declining demand for commercial real estate, falling real estate values, disruption to global capital or credit markets, or the public perception that any of these events may occur, can all have a negative impact on the performance of some or all the company's service lines.
• FX risk: Revenue increased by 3% to USD1.3 billion but in the case of a currency-neutral state the revenue would have been up by 4%, suggesting FX risk to be a primary risk for UAA.

Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation

Source: REFINTIV, Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company's FY1 trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks. 

Stock Recommendation

Over the past six months, UAA's share price has corrected by 57.18%. The stock is currently leaning towards the lower end of its 52-week range of USD 8.97 to USD 27.28. The current price is below both short-term (50-day) SMA and long-term (200-day) SMA but has taken good consolidation in the current range. Therefore, it is expected that after retesting the USD 9.00 to USD 9.50 range, the price is expected to bounce back. We have valued the stock using the EV/EBITDA multiple-based relative valuation method and arrived at a target price of USD 11.99. We believe that the company is trading at a discount from its peer's average considering but with strong fundamentals, and a good cash position, gives bullish estimates for the upcoming near future.

Considering the strong fundamentals, robust top-line results, associated risks, positive outlook, and current valuation, we give a "Buy" recommendation on the stock at the closing price of USD 10.13, as of June 10, 2022.

One Year Technical Chart, as of June 10, 2022. Data Source: REFINITIV, Analysis by Kalkine Group

Technical Analysis Summary:

*Entry Price as of June 10, 2022.

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and a downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and the uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavorable movement in the stock prices.

Note 1: The reference data in this report has been partly sourced from REFINITIV.  

Note 2: Investment decisions should be made depending on the investors’ appetite for upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above. 

Note 3: The report publishing date is as per the Pacific Time Zone.