While Under Armour Inc (NYSE:UA) prepares to release fourth-quarter earnings before the market open tomorrow, William Blair analyst Sharon Zackfia is out with a new research note on the athletic apparel maker, saying that the online markdowns increase (yielding full-quarter markdowns 35% to 40% higher than the prior year) is likely to limit fourth-quarter upside.
Zackfia believes Under Armour will meet her fourth-quarter EPS estimate of $0.25, in line with consensus and at the high end of imputed guidance of $0.24 to $0.25. “Upside to expectations will likely be limited by gross margin pressure on higher promotional activity, although lower incentive compensation has the potential to add up to a penny of upside.”
In addition, the analyst expects Under Armour will meet or slightly beat its implied revenue guidance of roughly $1.405 billion, although she expects gross margin could be modestly weaker than expected given higher promotional activity in the fourth quarter that has continued into January.”
Bottom line, “While we continue to believe the company’s long-term prospects are stellar, we are concerned that the stock valuation may remain under pressure given decelerating sales, margin pressure, and lower expected earnings growth over the next few years.”
Zackfia reiterates a Market Perform rating on shares of Under Armour, without providing a price target. According to TipRanks, which measures analysts’ and bloggers’ success rate based on how their calls perform, Zackfia has a yearly average return of 4.3% and a 51% success rate. Zackfia has a 20.7% average return when recommending UA, and is ranked #1281 out of 4378 analysts.
Out of the 33 analysts polled in the past 12 months, 15 rate Under Armour stock a Buy, 16 rate the stock a Hold and 2 recommend Sell. With a return potential of 56.9%, the stock’s consensus target price stands at $39.38.