Under Armour Rises As Deutsche Bank Says Buy On Turnaround Progress

Shares of Under Armour (UAA) are on the rise on Thursday after Deutsche Bank analyst Paul Trussell upgraded the stock to Buy as he expects benefits from multiple years of resetting the cost base, improving inventory control and pricing, and altering the distribution mix. Earlier this month, his peer at Pivotal Research had also upgraded Under Armour to Buy, saying the company is better off today than before COVID hit, although this is not reflected in the stock.

BUY UNDER ARMOUR: Deutsche Bank analyst Paul Trussell upgraded Under Armour to Buy from Hold with a price target of $22, up from $15. The analyst forecasts a 40% increase in the margin rate from 2019 levels by fiscal 2023 as benefits are reaped from multiple years of resetting the cost base, improving inventory control and pricing, and altering the distribution mix. In addition, he sees "green shoots" on the product side with elevated footwear, especially in the running category, momentum with Project Rock, a "unique opportunity" to grow the Curry brand and technology that enhances the apparel assortment.

While the analyst believes Under Armour is still lacking with fashionable sportswear, he thinks revenues can still accelerate to a mid-single-digit compound annual growth rate, buoyed by a supportive athleisure backdrop, International expansion, and a North America segment that returns to growth after four years of declines. Furthermore, Trussell sees an opportunity for multiple expansion driven by upward earnings revisions and growing investor confidence as the company executes through the turnaround.

Earlier this month, Pivotal Research analyst Mitch Kummetz had also upgraded Under Armour to Buy from Hold with a price target of $20, up from $15. The analyst told investors that he believes the company is better off today than before COVID hit, which is not reflected in the stock. COVID has elevated athletic demand, which is a "rising tide" for Under Armour, he contended. Further, Kummetz believes the pandemic has accelerated e-commerce adoption, which favors apparel/footwear vendors in general. The analyst added that Under Armour's sets up better than guidance, partly based on the preliminary results of his firm's December footwear survey.

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