Under Armour Goes From Growth Stock To Mature Brand; Morgan Stanley Upgrades

Shares of Under Armour Inc UA UAA have lost more than 25 percent so far in 2017 with the majority of the decline following the company's concerning fourth-quarter earnings report.

The sharp decline has prompted Morgan Stanley's Jay Sole to upgrade the stock to Equal Weight with a $20 price target.

Sole joins other notable Wall Street analysts who see upside in Under Armour's stock from its current levels.

Sole argued that heading into Under Armour's fourth quarter report, investors were expecting the company to demonstrate a long-term compounded annual growth rate of 23 percent and achieve a 14 percent EBIT margin. However, the current price of Under Armour's stock implies an 11 percent CAGR in sales and an 11 percent long-term EBIT margin which represents a "much more realistic" outlook than before.

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Sole continued and suggested that Under Armour's fiscal 2017 EBIT margin is only expected to be 6 percent but any small gains over time will make a "big difference." Specifically, the analyst is projecting a 30-basis point rebound in EBIT margin to 6.3 percent by fiscal 2020 and an 18 percent CAGR in earnings per share growth after fiscal 2017.

Sole did state that Under Armour remains a "good brand" and should be capable of earning an 11 percent margin as long as the company's SG&A investment is contained.

Finally, the analyst suggested Under Armour's current $9 billion valuation could dip as low as $4 billion in the ultimate bear case scenario but shouldn't fall below that figure given its potential to rank as the number two athletic wear brand in the United States.