On Friday, BofA Securities updated its stance on Under Armour (NYSE:UA), Inc. (NYSE:UAA) stock, reducing the price target to $8 from the previous $9, while keeping a Neutral rating.
The adjustment comes as the firm considers the current valuation of Under Armour to appropriately account for the unclear prospects of the company's return to normal earnings levels.
Under Armour's initial guidance for Fiscal Year 2025 (F25) has come in significantly below market expectations, with a projected decline in total sales in the low double digits, specifically a 15-17% decrease in North America.
Despite these lower sales figures, the company anticipates a gross margin increase between 75 to 100 basis points and a reduction in Selling, General & Administrative (SG&A) expenses by 2-4%. Earnings per share (EPS) are expected to be in the range of 18-21 cents, a stark contrast to the prior estimate of 63 cents.
The guidance also forecasts a challenging first quarter ending in June, with sales expected to drop in the low teens and EPS to fall between 8 to 10 cents. In response to these projections, BofA Securities has revised its F25 EPS estimate downward by 45 cents to 18 cents and adjusted the price objective to $8.
This new target is based on an 8 times forward Fiscal Year 2026 Enterprise Value/Earnings Before Interest, Taxes, Depreciation, and Amortization (EV/EBITDA) multiple, which is an increase from the previously used 7 times F2025 multiple, to better reflect the potential for recovery from the anticipated trough earnings in F2025.
InvestingPro Insights
Under Armour's current market dynamics and future projections offer a complex picture for investors. With a market capitalization of $2.91 billion and trading at a low earnings multiple of 7.23, the stock presents a potentially attractive valuation for bargain hunters. According to InvestingPro data, the company's P/E ratio has slightly adjusted to 7.19 when looking at the last twelve months as of Q3 2024. Despite a slight decline in revenue growth during the same period, Under Armour maintains a robust gross profit margin of 45.73%, indicating efficient cost management relative to its sales.
Notably, Under Armour does not pay dividends, which could be a factor for income-focused investors to consider. However, the company's liquid assets surpass short-term obligations, and it operates with a moderate level of debt, suggesting a stable financial footing. These aspects are particularly important given the volatile stock price movements recently observed. For those looking deeper into the financial health and future prospects of Under Armour, InvestingPro offers additional insights. There are 7 more InvestingPro Tips available, which can be found at Investing.com. To take advantage of these insights, readers can use coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, providing a more comprehensive investment analysis.
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