2015 was quite a year for owners of Under Armour (NYSE:UAA) stock. The UAA stock price was touching the $50 zone and investors were absolutely elated as the sneaker and sportswear company steadily increased its market share through the first half of the year.
Little did they know that the Under Armour stock price would deflate like a flat tire over the next several years, bottoming out at around $12.50 in 2017.
Today, UAA stock seems to be working its way back up gradually amid a major management transition, leaving shareholders to wonder whether Under Armour’s best days might indeed lie ahead of it.
Shakeup Brings Hope to UAA Stock Investors
Under Armour has come a long way since Kevin Plank founded the company way back in 1996. As Rory McDonald, Clayton M. Christensen, Daniel West, and Jonathan Palmer explain in a case study conducted under the auspices of the Harvard University Business School, “After twenty years of growth unprecedented in the sports apparel industry, Under Armour finds itself with a new record to beat: making the leap from $5 to $10 billion in sales — a feat only accomplished to date by competitors Nike (NYSE:NKE) and Adidas (OTC:ADDYY).”
Evidently Plank struggled to maintain Under Armour’s mojo in the American sportswear market, so a change of leadership was in order as the company formally announced Chief Operating Officer Patrik Frisk’s succession to the CEO position. The change won’t actually take place until Jan. 1, 2020, but the announcement was enough to immediately raise the Under Armour stock price by nearly 7%.
Frisk faces a tall order in steering the Under Armour ship amid widespread skepticism, succinctly represented by Wedbush analyst Christopher Svezia’s concern that, “The brand should continue to face headwinds as competitive dynamics continue to intensify.” That’s his analyst-speak way of saying that Nike still dominates the American market and Under Armour will struggle irrespective of who’s at the company’s helm.
Big Shoes to Fill
Current CEO Plank, as we would expect, maintains a more optimistic outlook on Under Armour’s transition, claiming that it will ensure “purposeful leadership continuity”:
Patrik is the right person to serve as Under Armour’s next CEO… As my partner during the most transformative chapter in our history, he has been exceptional in his ability to translate our brand’s vision into world-class execution by focusing on our long-term strategy and re-engineering our ecosystem through a strategic, operational and cultural transformation.
I’m surprised he didn’t also claim that Frisk parted the Red Sea, but suffice it to say that the incoming CEO will have to live up to a massive hype job. With Under Armour’s third-quarter earnings announcement coming up on Nov. 4, expectations will be high even if technically Frisk isn’t the CEO yet.
Just to give you a quick UAA earnings preview, the consensus analyst estimate for Under Armour’s earnings during the third quarter of 2019 is 18 cents per share. I’m personally expecting the results to come in higher than that, and I tend to concur with KeyBanc Capital Market analyst Edward Yruma’s price target of $30 for Under Armour stock.
Yruma appears to remain bullish throughout the company’s transitional period, stating, “We think that Under Armour’s initial success at its turnaround are in large part driven by a renewed focus on operational discipline driven by COO Frisk.” Hopefully as CEO, Frisk will continue to provide “operational discipline” and excel in the areas where Plank may have faltered.
The Takeaway on Under Armour Stock
I’m not expecting the UAA stock price to reclaim the $50 level this year or next, but I do believe that change is a good thing and it’s as good a time for Plank to step aside as any. With a positive earnings surprise in November and a strong start to 2020 with a new CEO, Under Armour could prove to be an overachiever soon enough.
As of this writing, David Moadel did not hold a position in any of the aforementioned securities.
