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Under Armour: Buy This Stock? – Barron's

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Kohl’s (KSS) earnings weren’t good news for Kohl’s stock–its shares dropped 5.8% the trading day following the announcement–but they might have been good news for Under Armour (UAA)…which sure could use some good news right about now.


Shares of Under Armour have dropped 7.3% so far in August, while Nike (NKE) has ticked up 0.1%, and Adidas (ADDYY) has dipped just 0.2%. Blame its weaker-than-expected guidance for the month’s pain.

But Kohl’s earnings only strengthen the bullish case for Under Armour, write Jefferies analyst Randal Konik and team. They explain why:

Kohl’s commentary on their 2Q call pointed to Under Amour exceeding expectations across almost every category. We believe this speaks to strong brand demand that the bears are ignoring. Under Armour selling into Kohl’s is a LT positive, as it broadens their TAM with a tailored merchandise assortment that is different from other channels, and it presents oppty to gain share in the Active/Wellness category that KSS is committed to scaling…We like UAA, as it is cheap, and there are catalysts. Buy this stock. In our view, current trading levels are unwarranted, particularly given other brands (e.g., Adidas) have traded higher with worse fundamentals. Our $28 PT is based on 2.3x C’18 EV/ Sales, and 20x EV/ EBITDA, a discount to the historical avg. Our DCF value approaches $30 using a LT view of brand sustainability and highlights the disconnect current price intrinsic value. Risks include weakening sales, difficult multi-yr comps and further Adidas share gains continue.

Shares of Under Armour have fallen 0.9% to $18.55 at 1:53 p.m. today, while Kohl’s has dropped 1.7% to $38.83, Nike is little changed at $59.06, and Adidas has gained 1.3% to $113.50.