Under Armour Inc (NYSE:UA) stock as you and I know it is soon to be forever changed. No, the fundamental case for buying UA stock remains the same, but the UA stock ticker is getting a makeover before the year is out.
Today, Under Armour announced its intention to change its ticker symbol for its Class A shares to “UAA” from “UA,” and its Class C shares will trade under “UA” rather than “UA.C.” Shares of Under Armour will remain listed on the New York Stock Exchange. The change goes into effect Dec. 7.
Anyone holding Class C shares will still not have voting rights, but as MarketWatch notes, it’s the Class A shares that are the most active, with a monthly average of 8 million shares trading hands each day (compared to 1.6 million for C shares). UA stock is up 1.1% in early morning trading, while UA.C shares are surging just north of 8%.
And if you’ve been paying attention, there’s a peculiar value gap in UA and UA.C shares.
UA stock trades at a 20% premium to UA.C shares.
Today’s announcement is representative of Under Armour executives’ concerns about the value gap, as the company plans to use C shares as stock-based compensation in the future.
Interestingly enough, Under Armour CEO Kevin Plank is the sole owner of UA’s B shares, which cedes 65.3% of the voting power in UA to him. That means that while a value gap between UA and UA.C would typically be normal considering the lack of voting rights in C shares, Class A owners are actually pretty much in the same boat as the non-voting C share holders since Plank holds the majority.
Bottom Line on the UA Stock Change
The bull case for UA stock remains intact: Sixteen of the 36 analysts covering the stock rate its shares a “buy” or better. There are no “sell” recommendations at this time, but 20 insist on holding or reducing positions in UA stock.
That reason for the holds could be because UA shares are the more shorted of the Under Armour stock family, which puts the stock more on the expensive side. And hedge funds hoping for a strong finish to the year are looking for short-term trades. UA.C appears to be such the meal ticket.
For instance, lagging C shares trade at 35 times next year’s earnings (versus 44 times earnings for UA stock). That provides a weird but viable opportunity for Under Armour bulls.
As investors pile into the underloved Class C shares, that value spread should narrow, giving UA shareholders a boost in 2017.
As of this writing, John Kilhefner did not hold a position in any of the aforementioned securities.