What: Branded performance apparel and accessories maker Under Armour (NYSE:UAA) may have inched lower in Thursday's trading by 0.4%, but it came on the heels of the company's better-than-expected fourth-quarter earnings results and (count them!) five price target increases from Wall Street firms.
So what: According to upgrade and downgrade aggregator Briefing.com, Under Armour had its rating remain unchanged at all five brokerage firms, but saw its price target increase anywhere from $2 to $8 per share. Over the past 52 weeks, Under Armour stock has ranged from $76.54 to $45.05, according to S&P Capital IQ data. It closed Thursday at $73.30.
A price target is perceived to be a fair valuation of a company from a brokerage firm, although time frames for when that price will be achieved are rarely given
The UA analyst moves were as follows:
- FBR Capital moved its price target from $81 to $83.
- Janney boosted its price target from $77 to $81.
- DA Davidson increased its price target from $73 to $81.
- Canaccord Genuity raised its price target from $93 to $97.
- Deutsche Bank lifted its price target from $78 to $82.
The general impetus among these firms for boosting their target price was Under Armour's better-than-expected revenue growth announced in Q4.
As a refresher, Under Armour on Wednesday reported revenue growth of 31%, highlighted by a 55% increase in footwear sales and a 37% increase in net income to $88 million. Adjusted profit per share improved 33% to $0.40. Furthermore, international net revenue jumped 123% and represented 9% of Q4 revenue.
Now what: The question that should be asked here is whether Under Armour is truly deserving of five separate price target hikes following a clearly solid earnings report.
On one hand the results pretty much speak for themselves. Under Armour is finding solid traction in overseas markets and consumers in the United States are showing tremendous loyalty to the brand. Forging a connection with consumers isn't easy, but Under Armour appears to have figured out the formula.
Under Armour also announced the purchase of two mobile fitness apps for around $560 million in order to take advantage of the rapidly growing wearables market. The move clearly puts Under Armour on a future collision course with Apple and Google in what's expected to be a high-growth wearables space.
On the flip side, Under Armour is already quite pricey, in spite of its rapid growth rate. Current shareholders are looking at a company trading at 48 times future earnings and a PEG ratio of 2.5, which is high for a retailer. Some would say Under Armour's rapid growth rate could support this valuation, but many branded retailers have difficulty maintaining their popularity over the long term without at least a few hiccups.
I also worry about the potential for higher costs and foreign currency woes to impact its push into international markets. Don't get me wrong; I think it's a smart move to expand its revenue stream overseas. But, I also expect this push to boost costs and constrain its EPS expansion.
For now I'd suggest sticking to the sidelines and waiting for a more advantageous price point before you consider adding Under Armour to your portfolio.
Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.
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