Under Armour Inc. (UAA) manufactures and distributes performance apparel, footwear, and accessories; its products have become popular with competitive athletes and consumers with active lifestyles, and are sold in more than 25,000 retail outlets worldwide, notes Kristina Ruggeri, an analyst with Argus Research.
Under Armour was hurt during the first months of the pandemic by restrictions on team sports and retail store closures. Since then, it has worked to improve results by closely managing inventory, avoiding product discounting, focusing on premium products, and boosting direct-to-consumer sales.
It has also strengthened marketing and implemented a restructuring program to lower costs. Thanks to these efforts, it posted stronger sales and earnings in 2021 than in pre-pandemic 2019.
UAA recently reported 4Q21 earnings that topped analyst expectations. For the year, revenue rose 25% in constant currency to $5.7 billion. Adjusted EPS came to $0.85, up from a loss of $0.26 per share in 2020 and EPS of $0.35 in pre-pandemic 2019. The full-year gross margin rose to a record 50.3%, up 340 basis points from 2019.
We note that UAA is changing its fiscal year-end to March 31 from December 31. The upcoming quarter will be a transition quarter and the new fiscal year end will begin on April 1 as 1Q23.
Reflecting the 4Q results and management’s guidance, we setting an EPS estimate of $0.05 for the transition quarter (January 1 through March 31, 2022). For FY23, we are setting an EPS estimate of $0.80, implying pro forma growth of 8%. Our FY23 revenue estimate is $6 billion, also on a pro forma basis.
UAA shares appear undervalued at current prices near $16. From a technical standpoint, the shares had been in a bearish pattern since 2016, but turned bullish following their pandemic lows in March 2020. However, they have fallen sharply since mid-November 2021.
On the fundamentals, UAA is trading at 20-times our new FY23 EPS estimate, reflecting both the broad market selloff and concerns about rising costs and supply chain disruptions.
We expect the company to overcome these challenges over time, and believe that the recent pullback provides investors with a favorable entry point. As such, we are raising our rating to "buy" with a target price of $19, implying a potential return of 19% from current levels.
