Morningstar

Under Armour's Restructuring Plans Support Growth

We plan to reduce our fair value estimate for the narrow-moat firm.

Securities In This Article
Under Armour Inc Class C
(UA)

We believe the natural questions investors should ask regarding

On the brand front, we still see long-term potential. Under Armour's North America segment remains in a down cycle--revenue was flat during the quarter--with the industry shift to fashion-athletic apparel versus performance, consumers' shift to digital channels, and the firm's own merchandising and supply chain issues weighing on results. Under Armour is not alone in its struggles, with competitors like VF, lululemon, and Columbia announcing facility/lease, contract termination, severance, inventory, and intangible asset impairment restructuring charges like the $110 million-$130 million the company expects to incur this year. Nevertheless, we still find two reasons narrow-moat Under Armour can return to double-digit growth in 2018 and beyond: The brand is resonating overseas (57% revenue growth in the quarter), and there is a halo effect from licensing deals with Major League Baseball and higher-profile athletes, professional teams, and universities.

We plan to reduce our fair value estimate to $24 per share from $28 as we factor in updated guidance (9%-11% revenue growth to $5.3 billion-$5.4 billion and ex-restructuring operating profit of $320 million, or operating margins of 5.4%), a modest reduction in our longer-term revenue growth assumptions (but still averaging low-double-digit growth beyond 2018), and the margin impact of category management, go-to-market, supply chain, and technology investments (which will likely keep post-2017 margins in the high single digits for a few years before returning to the low double digits). While fundamentals are likely to be choppy the next few quarters, we view the shares as undervalued from a long-term perspective.

Morningstar Premium Members gain exclusive access to our full analyst reports, including fair value estimates, bull and bear breakdowns, and risk analyses. Not a Premium Member? Get this and other reports immediately when you try Morningstar Premium free for 14 days.

More in Stocks

Our Top Pick for Investing in US Renewable Energy

Utility-scale solar and battery storage installations are poised to set records in 2024.
Brett Castelli

How to Measure a Stock’s Uncertainty

Morningstar’s Uncertainty Rating helps investors understand the risks associated with an investment and how that may influence a decision to buy.
Emelia Fredlick

How to Determine Whether a Stock Is Cheap, Expensive, or Fairly Valued

The Morningstar Rating for stocks gauges how a stock’s price compares with what our analysts think it’s worth.
Emelia Fredlick

About the Author

R.J. Hottovy

Sector Strategist
More from Author

R.J. Hottovy, CFA, is a consumer strategist for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc. He is responsible for consumer discretionary and staples research. He has covered the consumer sector as an analyst and director of global consumer equity research for Morningstar since joining the company in 2008, and specializes in a broad range of consumer categories including restaurants, footwear and apparel retailers, consumer electronics retailers, fitness clubs, home improvement and furnishing retailers, and consumer product manufacturers.

Before joining Morningstar, Hottovy was a director and senior stock analyst for Next Generation Equity and an analyst for William Blair & Co., specializing in a wide range of retail and consumer product companies. He also spent two years at Deutsche Bank, covering waste management, water utilities, and equipment rental stocks.

Hottovy holds a bachelor’s degree in finance and a second degree in computer applications from the University of Notre Dame, where he graduated magna cum laude. He also holds the Chartered Financial Analyst® designation and is a member of the CFA Institute and the CFA Society of Chicago.

Sponsor Center