On Thursday, Under Armour Inc. (NYSE:UAA) received an upgrade from a Williams Trading analyst, who shifted the stock's rating from Hold to Buy and increased the price target from $6 to $10. The upgrade comes in the wake of Under Armour (NYSE:UA)'s first-quarter performance for fiscal year 2024, which surpassed expectations. The analyst highlighted several factors contributing to the positive outlook, including the company's recent strategic moves.
Under Armour has embarked on an 18-month restructuring plan, which began three months ago, aiming to reposition its brand in the U.S. market. The plan includes a 25% reduction in product count and a strategy to decrease promotional activities in order to enhance the brand's value. The hiring of Eric Liedtke, a former Adidas (OTC:ADDYY) executive with 26 years of experience, as EVP of brand strategy was cited as a significant step toward these goals.
The company's new approach is seen as more patient and thoughtful than previous strategies. This shift is evident in the decision to reallocate marketing expenditures from the first half of fiscal year 2025 to the second half, aligning with the evolution of the product and brand strategy for fiscal year 2026. Under Armour's strong balance sheet is believed to support this measured approach.
Despite the second half of fiscal year 2025 earnings per share (EPS) guidance falling below consensus estimates, the analyst views the strategy as positioning Under Armour for future success. The anticipated reduction in promotional activity is expected to improve gross margins, although this may be offset by increased freight costs and foreign exchange headwinds. The first half of fiscal year 2025 guidance suggests an EPS of $0.19 to $0.21, compared to the prior consensus estimate of -$0.07, while the implied EPS for the second half ranges from -$0.02 to $0.01, versus a consensus estimate of $0.15.
The analyst expressed optimism that patience would benefit both Under Armour and its investors, as the company's restructuring efforts and brand elevation strategies unfold.
In other recent news, Under Armour posted a surprising first-quarter profit, leading to an upward revision of its annual profit forecast. The sportswear company attributes this success to a strategic shift toward selling higher-margin items and reducing inventory, which has resulted in a gross margin increase to 47.5%. Despite these positive strides, Under Armour's first-quarter revenue fell by 10% to $1.18 billion due to a decline in North American and international business revenues.
In analyst news, Under Armour's stock was downgraded by Morgan Stanley from Equalweight to Underweight, citing limited growth prospects and potential negative earnings per share revisions. Conversely, UBS maintained its Buy rating on the company's shares, predicting an in-line report for the first quarter of 2025. Despite facing challenges, Under Armour's strategic changes have been noted by analysts from Barclays Capital Inc., BMO Capital Markets Corp., and Williams Trading.
The company recently settled a 2017 shareholder class action lawsuit for $434 million, a move that introduces new financial risks and reduces the company's financial flexibility. This development, along with Under Armour's strategic pivot, has led to revised price targets by several analyst firms. The company's future now depends on its ability to execute its turnaround plan without further negative deviations from its projected financial path.
InvestingPro Insights
Following the analyst upgrade, Under Armour Inc. (NYSE:UAA) is capturing the market's attention with its strategic moves and recent performance. InvestingPro data provides a deeper look into the company's financial health and market performance. With a market capitalization of $3.37 billion and a P/E ratio that has adjusted to 11.93 over the last twelve months as of Q4 2024, Under Armour shows a valuation that may interest investors looking for growth potential. The company's revenue stands at $5.70 billion for the same period, despite a slight decline in revenue growth.
Two key InvestingPro Tips highlight the company's financial stability: Under Armour's liquid assets exceed its short-term obligations, and it operates with a moderate level of debt. This financial resilience could be a critical factor in the success of its 18-month restructuring plan. Furthermore, analysts predict the company will be profitable this year, a sentiment that aligns with the company's profitable performance over the last twelve months.
For investors seeking a more comprehensive analysis, there are additional InvestingPro Tips available on the platform. These insights delve into various aspects of Under Armour's financials and market performance, offering a more nuanced view of the company's potential. Interested readers can find these additional tips on the InvestingPro platform, which includes a fair value estimate of $10.23, significantly higher than the current price.
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