On Tuesday, Citi has adjusted its outlook on Under Armour Inc. (NYSE:UAA), reducing the price target for the company's shares to $7 from the previous $8 while keeping a Neutral rating.
The firm anticipates a modest earnings per share (EPS) outperformance for Under Armour (NYSE:UA)'s fourth-quarter 2024 results, which are set to be announced before the market opens on May 16, 2024. However, Citi's sales forecast is expected to fall short of the consensus, counterbalanced by a stronger gross margin (GM) than expected by the consensus.
The financial services company expects the management of Under Armour to provide fiscal year 2025 guidance that does not meet consensus expectations. The projection is closer to $0.50 compared to the consensus of $0.59. This is attributed to an anticipated decline in sales, with Citi's model showing a 2% decrease versus the consensus's expectation of a 2% increase.
The North American market outlook is particularly weak, with a projected 5% drop in sales as opposed to a flat consensus estimate. The weaker sales forecast is driven by soft industry trends and the company's management not expecting significant changes to product assortment until calendar year 2025.
Despite these concerns, Citi notes potential positive factors such as lean inventory and product cost deflation, which could provide tailwinds to gross margin, along with effective expense management. These elements may prevent significant downside to EPS, which Citi believes should stay around $0.50, unless there is a substantial increase in spending by the returning CEO Kevin Plank.
Citi also remarks on the current market sentiment towards Under Armour, indicating that it is one of the most heavily shorted stocks in its coverage. While the weak guidance for fiscal year 2025 is largely factored into the current stock price, the firm suggests that the risk/reward profile leans toward slightly negative as the company approaches its fourth-quarter earnings report.
The uncertainty associated with Plank's return to the business further contributes to this cautious outlook.
InvestingPro Insights
Under Armour Inc. (NYSE:UAA) is currently navigating through a challenging financial landscape, as reflected in the recent analysis by Citi. To complement this outlook, real-time data from InvestingPro provides additional insights into the company's financial health and market performance. The company's market capitalization stands at $2.88 billion, indicating its size and relevance in the industry. With a Price-to-Earnings (P/E) ratio of 7.18, Under Armour is trading at a low earnings multiple, which could suggest that the stock is undervalued relative to its earnings. This aligns with the InvestingPro Tip highlighting the stock's valuation.
Investors should also take note that Under Armour's stock price movements have been quite volatile. This is an important consideration for those looking to manage risk in their portfolios. Additionally, the company's ability to cover interest payments with its cash flows is a positive sign of financial stability, which is crucial during uncertain economic times. Moreover, Under Armour's liquid assets exceed its short-term obligations, providing a cushion against potential liquidity issues.
With the next earnings date set for May 16, 2024, investors will be closely monitoring Under Armour's performance. The company's stock is also trading near its 52-week low, which might present an opportunity for investors considering entry points. For those seeking more comprehensive analysis, InvestingPro offers additional tips to help inform investment decisions. To access these insights and more, consider using the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription. There are 6 more InvestingPro Tips available for Under Armour, providing a deeper dive into the company's prospects and performance.
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