Could Under Armour Have Its Fundamentals On Track In Less Than A Year?

Despite Under Armour Inc UAA's catastrophic year, one analyst is maintaining a bullish stance on the company, projecting that long-term investors will be rewarded if they stay the course ahead of a sentiment shift that could come in less than a year. 

The Analyst

Jonathan Komp of Baird Equity Research maintained an Outperform rating with a $17 price target.

The Thesis

Although Komp said he believes that the current negative sentiment surrounding Under Armour is warranted, but thinks Wall Street may be overlooking the company’s potential for a comeback as it embarks on a two-year turnaround plan. (See Komp's track record here.) 

“We still believe UA's near-term slowdown reflects temporary disruptions and not deterioration of brand fundamentals. While disappointed a potential recovery has been pushed out, we do not believe the brand fundamentally is broken,” Komp said.

With the fourth quarter shaping up no worse than planned, Komp said that staying involved ahead of a potential turnaround will reward longer-term investors. At the same time, Under Armour is the weakest name on Baird's conviction list, Komp said. 

“Near-term visibility still is clouded, but FQ4 seems on track and better operating fundamentals may be [less than] 12 months away, suggesting long-term oriented investors should consider UAA." 

One of Under Armour’s biggest issues is having a $6-6.5 billion infrastructure with less than $5 billion in sales, Komp said. 

The addition of COO Patrik Frisk can quickly impact the business, said Komp, who likened Frisk's arrival to Nike Inc NKE's late 1990s restructuring.

A former CEO of the Aldo Group, Frisk is thought to be the catalyst who can make Under Armour a player in sportswear fashion, a category the company has been desperately trying to break into, but in which it's failed to move the needle. 

Frisk will have the tall task of changing the sentiment surrounding Under Armour’s product lineup, particularly in footwear, a segment where social media bashing of Under Armour's releases has become as American as apple pie.

Been mixers reviews on the Curry 4 depending on colorway. This “More Buckets” version comes out Friday. pic.twitter.com/kvMnUJGrgh

— Darren Rovell (@darrenrovell) December 4, 2017

Sportswear analyst Matt Powell said Under Armour's problems are straightforward, telling Benzinga: “Under Armour's problems are really simplistic. They are not playing where it's hot." The retailer hasn't established a foothold in the retro or running categories, Powell said. 

Retro they can’t play in, and they have not been able to establish runner, that’s really hurt Under Armour,”

It's possible for Under Armour to make a comeback over the long term, the analyst said. 

Price Action

Shares of Under Armour were falling 2.58 percent to $13 at the time of publication. 

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Photo courtesy of Under Armour.