Under Armour Inc (UAA) Gets A Price Target Cut From Erinn Murphy Following Strained 3Q Turnout

Piperr Jaffray's Erinn Murphy believes the UAA model needs a revamp, especially on the domestic front.

Under Armour Inc (NYSE:UAA) is a story of “challenged fundamentals,” with shares falling almost 3% today after a just under 24% plunge yesterday. In other words, investors did not like what they saw with the athletic retailer’s disappointing third quarter performance.

Piper Jaffray analyst Erinn Murphy remains on the side of caution when it comes to Under Armour’s prospects, tied between backing the brand’s legacy, but acknowledging a slew of setbacks. For one, the analyst spotlights “international as the only growth driver remaining” over the next 12 months, which is problematic. Now, instead of calling for $0.34 for 2018, the analyst projects the struggling athletic retailer will at best hit $0.05.

In reaction to the weakness of the quarterly results, the analyst maintains a Neutral rating on UAA stock while dialing back the price target from $14 to $11, which implies a close to 11% downside from current levels. (To watch Murphy’s track record, click here)

“Although UAA’s Q3 miss and Q4 guidance reduction were not that far off our expectations (Q4 sales -/+ LSD % vs. our Street-low +7%), the category composition was alarming to us,” the analyst writes, likewise pointing out the UAA team has cut back on its gross margin expectations for the year with inventory closing the third quarter with 22% year-over-year growth and set to stick above 20% through at minimum the end of 2017. Moreover, “promotional intensity” seems to be getting worse for the consumer goods player.

In an apprehensive overview of Under Armour’s earnings picture, Murphy underscores: “International and new wholesale distribution (KSS/DSW) were bright spots, but underperformance in core categories (apparel, women’s, outdoor and youth) and heavy exiting inventory were key challenges. Looking ahead to Q4, we are concerned by the abrupt slowdown planned in DTC and believe implied int’l guidance could prove aggressive. Category optics in NA have likely worsened Q/Q and while FY18 guidance was not provided on the call, we see FY18 as a year of EPS Y/Y declines. Inventory could remain elevated through 1H and we believe the stock could bleed out until we get better visibility on FY18 and deeper restructuring commentary. While UAA still holds merits as a brand (albeit challenged currently), the model needs to be overhauled as UAA adjusts to a smaller brand–at least in NA for now.”

This analyst is not the only one planted on the sidelines when it comes to betting on or fleeing from the athletic retailer, considering TipRanks analytics exhibit UAA as a Hold. Based on 18 analysts polled by TipRanks in the last 3 months, 3 rate a Buy on Under Armour stock, 10 maintain a Hold, while 5 issue a Sell. The 12-month average price target stands at $15.64, marking a nearly 38% upside from where the stock is currently trading.

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