Why Weakness In Dick's Is A Buy Signal For Under Armour

Dicks Sporting Goods Inc DKS reported disappointing first-quarter earnings results Tuesday, prompting UBS to downgrade the stock to a Hold from a Buy rating.

However, not all voices from the Street took a bearish turn. Jefferies analyst Randal J. Konik sees now as a good opportunity to buy Under Armour Inc UAA on Dick’ s underwhelming first quarter.

Reciprocity In Sports Segment

“UAA is one of the few brands that matters in the athletic space. It has significant opportunity to scale N.A., footwear, int’l, women’s, and lifestyle LT. With valuation compressed and overly negative sentiment, we see significant upside,” said Konik on Tuesday.

While comps rose 2.4 percent year over year at Dick’s in the first quarter, it came below previous guidance and Street expectations. Golf and footwear were bright spots for Dick’s, however, two areas where Under Armour has a significant presence.

Recent markdowns of adidas AG (ADR) ADDYY apparel against full-price selling for Under Armour at Dick’s stores was an encouraging sign for Jefferies. With Under Armour’s women’s business recently passing $1 billion, it still makes up just 30 percent of its overall apparel sales, posing a significant opportunity to scale, according to Jefferies.

“Just as today’s adults grew up with Nike Inc NKE, we believe UAA’s resonance with younger generations will drive brand loyalty down the road,” added Konik.

Jefferies maintains a Buy rating on Under Armour with a $28 price target.

Related Links: