On Thursday, Stifel adjusted its stance on Under Armour (NYSE:UA), Inc. (NYSE:UAA), reducing the stock price target on the company's shares to $10 from $11, while continuing to endorse a Buy rating for the stock. The adjustment follows Under Armour's recent announcement of a new CEO and a less than robust financial forecast for fiscal year 2025.
The company's forecast for fiscal year 2025 includes a low double-digit decline in revenue, a comprehensive restructuring plan, and a significant decrease in profitability expectations. Kevin Plank, the newly appointed CEO, has committed to learning from previous errors and is concentrating on revamping the brand's image and reigniting excitement for its products.
Despite Under Armour's structural EBIT margin potential remaining in the low double-digit percentage range, which has implications for cash flow and valuation, the firm sees room for improvement over time.
Stifel notes that with a market capitalization of $3.1 billion and normalized net cash of $167 million, Under Armour's shares are currently trading at 0.6 times enterprise value to sales (EV/S) based on the midpoint of its fiscal year 2025 guidance, which is considerably lower than its athletic industry peers.
The analyst highlighted the strength of Under Armour's balance sheet and expressed optimism regarding the new $500 million share repurchase authorization. While acknowledging that the current valuation discount is justified, Stifel also pointed out that Under Armour's strong brand credibility and global reach offer a degree of downside risk protection.
The firm's $10 stock target price is based on 0.8 times the projected enterprise value to fiscal year 2025 estimated revenue of $5,080 million.
InvestingPro Insights
Under Armour's current market dynamics offer several noteworthy insights for investors considering the brand's future. According to InvestingPro data, Under Armour has a market capitalization of $2.92 billion and is trading at a low earnings multiple with a P/E ratio of 7.23, suggesting the stock could be undervalued relative to its earnings.
The company's operational strength is reflected in its ability to cover interest payments with its cash flows and maintain liquid assets that exceed short-term obligations. Despite a slight decline in revenue over the last twelve months as of Q3 2024, Under Armour's gross profit margin stands strong at 45.73%, indicating robust underlying business efficiency.
InvestingPro Tips highlight that while Under Armour's stock price movements have been quite volatile, analysts are optimistic about the company's profitability in the current year. Moreover, with a moderate level of debt and no dividend payouts, the company may be reinvesting its earnings back into the business to fuel growth.
For investors seeking more in-depth analysis, there are 5 additional InvestingPro Tips available for Under Armour at Investing.com/pro/UAA. To take advantage of these insights, use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
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