Raymond James Upgrades Under Armour to “Strong Buy”

Raymond James Upgrades Under Armour to “Strong Buy”
November 29, 2019


The shares of footwear and sports apparel manufacturer Under Armour, Inc. (NYSE: UA) has turned bullish after Matthew McClintock, an analyst at the equity research firm Raymond James upwardly revised the stock to a “strong buy” rating, saying the stock has been beaten too much in the past few weeks. The stock has lost nearly 35% after it trimmed its fiscal 2019 revenue outlook and revealed that the Justice Department is scrutinizing the company’s accounting practices. The stock closed at $17.49, up $1.02 or 6.19% from the prior close.

In the first week of November, the Baltimore, Maryland-based Under Armour stated that the company is under scrutiny by the US SEC (Securities and Exchange Commission) and Justice Department for fudging of accounts. While reporting the quarterly results, the company acknowledged that the US authorities are probing into its accounting practices. It can be remembered that the company posted over 20 consecutive quarters of sales growth exceeding 20%, placing it in the list of fast-growing retailers in the US.

The news about the federal probe has come after CEO Kevin Plank surprised the market by announcing his plan to step down by January 1st, effectively paving the way for COO Patrik Frisk to take up the mantle. Plank is scheduled to become the executive chairman and brand chief. The company has been facing turmoil in its management ranks. Under Armour has seen three CFOs between 2016 and 2017. The company is going through a transition in its executive team.

In the meanwhile, Under Armour has revealed that it has been cooperating with the US authorities and providing requisite documents dating back to 2017, the period which saw the company’s exceptional sales run up come to an end.

Under Armour has also stated that it anticipates revenues to increase 2% in FY 2019, instead of 3% to 4% growth forecast earlier. Analysts are expecting annual revenue growth of 3.1%.

Following the downward revision of the FY 2019 revenue outlook and the acknowledgment of a probe by US agencies regarding accounting practices, the stock was hammered by investors and speculators.

However, the analyst stated that the stock of Under Armour is “underrated” and an “underdog.” Raymond James resumed its coverage of Under Armour earlier this month with an ‘outperform’ rating.

In the research note, Raymond James has pointed out that the company has launched a new range of products, while being optimistic about the outcome of the investigation by the government regulators.  The company has cleared out some inventory to give way for new merchandise, which is sold at a premium in the wholesale business.

McClintock believes that the introduction of new merchandise and a positive response from the market will make it easier for the new chief executive, Patrik Frisk. Furthermore, a majority of investors with whom the analyst interacted believes that there will not be any significant outcome from the investigations.  The analyst believes that the fundamentals remain intact.

McClintock wrote, “We now believe that recent news regarding ongoing communication between Under Armour and the [U.S. Securities and Exchange Commission and Depart of Justice] is likely less of an overhang to the stock than we originally feared. We have talked to a broad spectrum of investors — ranging from high-risk-appetite hedge funds to high-risk-adverse pension funds — and it appears that the consensus expectation is for minimal, if any, outcome from these discussions.”

Based on the aforementioned facts, the analyst upgraded the rating to a ‘strong buy,’ while maintaining the price target of $30, which represents roughly 60% upside from yesterday’s closing price.

Technically, the historical price chart indicates that the stock is ascending after testing the support at 15. The next resistance is anticipated only at 22. The stochastic indicator is out of the bearish zone. Therefore, we are expecting the stock to appreciate in the short-term.

UA - technical analysis - 29th Nov 2019

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Richard W

Richard W

Richard is the guy who know everything there is about the financial industry, working in a top firm for over 15 years, he will give the lowdown on some of the biggest companies in the world

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