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Under Armour Inc (UA) Stock’s MLB Deal Could Be a Home Run

UA stock's game-changing MLB deal looks like a massive growth opportunity

By Chris Katje, InvestorPlace Contributor


Under Armour Inc (NYSE:UA) stock was a top performer over the last five years, with UA stock gaining over 200%. However, shares of UA have come under tough times recently, with shares down 34% in the last year, aided by a precipitous 16% drop in the last five days.

However, good news for Under Armour stock may be coming in the form of a game-changing partnership with Major League Baseball. Reports say Under Armour has signed to become the official supplier of MLB jerseys. This marks the first time UA will have a deal for one of the four major sports in this capacity.

Get ready for Under Armour stock to enter the spotlight.

Under Armour has been an underdog since its beginning. The company took on a multibillion-dollar athletic apparel market dominated by companies like Nike Inc (NYSE:NKE) and Adidas (OTCMKTS:ADDYY). Through years of hard work and growth from retail and international sales, Under Armour now trails only Nike in North America.

UA Stock’s Big Play

One of Under Armour’s strategies to gain market share in athletic apparel and individual sports has been through player endorsements. In baseball, Under Armour made a couple of early bets on rookies that have given it a nice portfolio of endorsed MLB stars.

Under Armour signed Buster Posey (San Francisco Giants) and Clayton Kershaw (Los Angeles Dodgers) as rookies. UA also made an early bet on Bryce Harper (Washington Nationals) while he was still in the minor leagues. This has now given Under Armour an MLB MVP and the face behind its entry into baseball cleats, a new area of growth in footwear.

UA stock isn’t alone in using a young MLB star to promote its cleats. Nike has Mike Trout (Los Angeles Angels) and Adidas has Kris Bryant (Chicago Cubs).

Under Armour released the Harper One shoe in July and used the MLB All-Star Game Weekend to launch the product. Footwear sales were up 58% in the second quarter, an area of continued growth for Under Armour.

UA stock used a similar strategy with basketball, which has paid off huge. Under Armour signed a young Steph Curry, before he became a breakout star and one of the best players in the National Basketball Association. Curry now has his own shoe, and Under Armour continues to grow market share in a category that Nike has dominated for years.

Assuming reports are true, Under Armour will take over the contract for MLB jerseys beginning in 2020. While this means shareholders of Under Armour stock have a couple of years to wait, we can still celebrate this as a victory. This marks the first of the four major sports to ever have an exclusive deal with Under Armour. Remember UA missed out on gaining the rights to make NBA jerseys last year to rival Nike, when the deal was up for renewal. With a bid on the NBA deal and now a win for MLB jerseys, Under Armour is serious about taking large contracts and bringing its brand to more television sets and households via jerseys of professional athletes.

UA stock will take over the MLB deal from Majestic Athletic, a subsidiary of VF Corp (NYSE:VFC). Majestic is part of a VFC division called Imagewear. Part of that division called the Licensed Sports Group Division was put on the block earlier this year by VFC. It is unclear if there were potential buyers, but VFC might struggle to find a buyer now with Majestic losing its major deal.

VFC’s Imagewear division did $1.1 billion in 2015, with the Licensed Sports Group division representing around half of that total. Majestic revenue is not broken out individually.

Majestic isn’t exactly a huge stand-alone brand, like Under Armour. Majestic also didn’t have a portfolio of MLB stars.

Bottom Line for Under Armour Stock

I believe this MLB deal is going to be huge, as Under Armour is a much more well-known brand than Majestic. Under Armour will also use its endorsees to promote the new jerseys and cross-promote its baseball cleats as well. Under Armour could also use baseball as a way to get stores inside stadiums or in the nearby markets where the teams play.

Under Armour makes batting gloves, catcher’s equipment and cleats, all items that will help make baseball a big priority for the company with its game-changing MLB jersey deal.

Even without growing sales of MLB jerseys or its own baseball items, this deal is big for Under Armour stock. Majestic accounted for close to $500 million annually for VFC. Under Armour has annual revenue of less than $5 billion, meaning this deal could add 10% revenue growth starting in 2020 on its own.

The Under Armour stock story isn’t over, as more growth is coming. The Under Armour story started with high school and college athletes. The company then started going after individual athletes and also getting its brand into NFL. Basketball then became the big growth story, with Curry leading the way. Baseball now could be the headline, with major money being paid to gain the jersey contract and keep Harper as an endorsee.

Under Armour stock was once considered overvalued. UA continues to deliver growth of 20% or more every quarter and is seeing incredible growth in footwear and international sales. Meanwhile, the closing and liquidation of Sports Authority was seen as a negative for Under Armour stock. With a MLB deal looming and the recent price plunge, UA stock looks like it could be in bargain territory.

Follow Under Armour and its continued moves into disrupting market leader Nike.

As of this writing, Chris Katje did not hold a position in any of the aforementioned securities.

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Article printed from InvestorPlace Media, https://investorplace.com/2016/10/under-armour-inc-ua-stock-ipmedia/.

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