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JPMorgan cuts Under Armour stock to underweight, slashes price target

EditorAhmed Abdulazez Abdulkadir
Published 05/16/2024, 01:55 PM
© Reuters

On Thursday, JPMorgan delivered a bearish stance on Under Armour (NYSE:UA), Inc. (NYSE:UAA), downgrading the stock from Neutral to Underweight. The firm also reduced the price target from $8.00 to $6.00.

The downgrade follows Under Armour's management forecast, which set the adjusted earnings per share (EPS) for fiscal year 2025 at $0.18 to $0.21. This projection falls significantly below the Street's expectation of $0.59, based on anticipated revenue declines and other financial measures.

Under Armour's management anticipates revenues to fall by low double-digits, which is more pessimistic than the Street's projection of a 2.4% year-over-year increase.

Despite an expected improvement in gross profit margin (GPM) of 75 to 100 basis points year-over-year, surpassing the Street's forecast of a 60 basis point increase, the company's selling, general, and administrative expenses (SG&A) are projected to decrease by 2-4% year-over-year. This is expected to result in an approximate 2.8% EBIT margin at the midpoint, below the Street's expectation of 6.0%.

For the near term, Under Armour's guidance for the first quarter of fiscal year 2025 includes a projected diluted loss per share of $0.08 to $0.10, contrary to the Street's estimate of a $0.04 gain. The company expects revenues to drop by low teens year-over-year, which is significantly below the Street's forecast of a 0.1% decline.

Additionally, the gross margin is projected to decrease by 20 to 30 basis points year-over-year, which is less optimistic than the Street's expectation of a 70 basis point increase.

Despite the disappointing outlook for the first quarter, Under Armour's management anticipates revenue growth to sequentially improve from the second to the fourth quarter, with declines expected to be in the high single digits, an improvement over the first quarter's low teens decline.

The company also expects gross margin expansion to improve, with a planned increase of 120 basis points year-over-year in the second to fourth quarters. This is anticipated to be a significant improvement over the first quarter's decline, with management citing healthier full-price selling compared to the promotional headwinds experienced over the past two years.

InvestingPro Insights

As Under Armour navigates through its financial forecasts and market expectations, real-time data from InvestingPro provides a more granular look at the company's financial health. The company's market capitalization stands at approximately $2.94 billion, with a notably low price-to-earnings (P/E) ratio of 7.24, suggesting that the stock could be undervalued relative to its earnings. This aligns with one of the InvestingPro Tips, which points out that Under Armour is trading at a low earnings multiple.

Another key metric is the price-to-book (P/B) ratio, which at 1.34 for the last twelve months as of Q3 2024, indicates that the market values the company at slightly above its book value. Additionally, the company's revenue for the same period was $5.77 billion, despite a slight year-over-year decline of 0.64%. These figures highlight Under Armour's ability to maintain a solid financial base, even in the face of revenue headwinds.

InvestingPro Tips also suggest that Under Armour operates with a moderate level of debt and has liquid assets that exceed its short-term obligations, providing the company with financial flexibility. Moreover, analysts contributing to InvestingPro predict the company will be profitable this year, a sentiment backed by the company's profitability over the last twelve months.

For readers seeking a deeper analysis, there are additional InvestingPro Tips available, which can be accessed via the dedicated page for Under Armour (https://www.investing.com/pro/UAA). To enhance your investment research, use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, unlocking even more expert insights.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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