Under Armour Inc (NYSE:UAA) can’t seem to escape the bears’ grasp this year, shedding 33% year-to-date. Today, UAA stock is plumbing the depths thanks to an analyst downgrade.
Interestingly, UAA shares were actually trending up 1.7% in Monday’s premarket trading, until FBR’s Susan Anderson released her downgrade.
Anderson cut the price target on Under Armour stock from $20 to $14 and slashed per-share earnings estimates from 47 cents to 37 cents.
UAA stock is plumbing the depths as a result, which has investors again speculating whether Under Armour is a bargain at this point, or a steaming pile.
The UAA Stock Downgrade
From Anderson’s report:
“We are downgrading UAA to Underperform given recent checks, proprietary surveys, unfavorable trends, and our apparel/footwear analysis pointing to continued sales/margin pressure. Our checks show a price war is intensifying between Nike and UA after UA’s entrance into Kohl’s, which is causing NKE to defend its turf. This, coupled with the NA athletic apparel inventory glut, could cause UA apparel growth/margins to be worse than expected.”
Anderson also noted her concern with Under Armour’s products and the inevitable ramp-up in competition from monster rival Nike.
“Also, a lack of UA footwear innovation, increased competitor innovation (NKE VaporMax), and our footwear survey showing UA is losing consumer resonance could mean lower 2017 footwear growth.”
Indeed, Anderson believes Under Armour stock is facing pressure on its sales and profit margins, with a price war between Under Armour CEO Kevin Plank and Nike CEO Mark Parker hitting a fever pitch as UA forces Nike to “defend its turf.”
It doesn’t bode well that UA has taken to heavily discounting its wares in both sporting goods and department stores to move product. The analyst noted a recent 25% off sale in Kohl’s Corporation (NYSE:KSS) as particularly foreboding.
As it would be, Anderson noted a steep drop in consumer appeal YoY. In a survey conducted by FBR, only 27% said they’re more likely to buy Under Armour shoes (compared to 31% in 2016); and 27% said they’re less likely to buy UA shoes (compared to 22% last year).
Meanwhile, Nike remains on the innovative cutting edge.
Bottom Line on UAA Stock
At least one major media pundit agrees. The inimitable Jim Cramer, who sees Nike’s comeback as inevitable:
“[Nike has] the balance sheet. They’ve got the technology. And they do not like Kevin Plank. They are saying, ‘We are going to eviscerate you, Plank.'”
But you know what they say: When everyone else is fearful, be greedy … or at least cautiously optimistic. Barron’s Jack Hough agrees, advising its readers to “check back at the end of the year to find out who got it right.”
There’s a few reasons to be skeptical of any doomsday situation for UAA stock.
Firstly, Kevin Plank & Co. put one of “its teams” — South Carolina — in the Final Four. That’s a rare high-profile college basketball presence, and a strike against Nike, who sponsors the other three teams that made the Final Four cut.
Most importantly, Hough sees UA on a road to recovery, one that results in continued double-digit growth versus single-digit growth at Nike. The reason? Simple. Under Armour has more markets to grow. Nike has pretty much already conquered the world.
According to Hough, contrarians stand to make 30% gains if they buy UAA stock here, but caution is still the name of the game.
As of this writing, John Kilhefner did not hold a position in any of the aforementioned securities.