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Stock Analysis & Ideas

Under Armour: Repurchase Program to Bolster Stock

Under Armour (UAA) is a North American sports apparel and footwear manufacturer.

The company has achieved tremendous success with a branding strategy that aims to combine a sleek look with assisted performance. I am bullish on the stock.

Earnings & Stock Repurchase Program

Under Armour surpassed expectations last month when it beat its fourth-quarter revenue and EPS targets by $60 million and $0.07, respectively.

Revenue numbers in North America were robust as they exceeded the $1.1-billion mark (+15% year-over-year). International numbers also came in strong, with revenue rising by 3% during the year to reach $461 million.

As illustrated by its fourth-quarter report, Under Armour’s annual growth for 2021 was phenomenal.

E-commerce sales continue to be the firm’s main talking point as sales rose by another 42%, proving that a post-lockdown pandemic won’t slow down consumers’ proclivity to buy online.

Additionally, Under Armour’s Wholesale division is proving its worth by growing an additional 16%, while Direct-to-Consumer sales also posted noticeable growth of 10%.

As a result of its latest financial success, Under Armour decided to announce a $500-million share repurchase program, of which $300 million will be repurchased in the near term.

The incentive for investors here is that repurchases programs generally increase the intrinsic value of stocks and, in turn, their traded value.

Broader Market Outlook

Under Armour stock has faced a range of systemic headwinds of late. The stock has drawn down by approximately 20% this year due to broad-based stock market factors, rather than idiosyncratic features.

First of all, there’s been uncertainty in the monetary policy arena as the Federal Reserve hasn’t raised interest rates as quickly as anticipated, which has dampened the prospects for consumer discretionary stocks such as Under Armour.

Another factor that’s added significant pressure to the stock is the fact that consumer sentiment reached a decade’s low in February amid Russian sanctions, with the notion that rising energy costs will stretch consumer spending abilities.

Nevertheless, it seems as though the market has overreacted by ignoring positive economic factors, such as U.S. unemployment’s 36.67% decrease and the 8.73% increase in the U.S. GDP per capita (year-over-year).

The fact of the matter is that Under Armour has a stronghold within its target market, as shown by its sales numbers during the past few years.

It’s thus eligible to conclude that major sell-offs of its stock are unjustified, given that the majority of key drivers remain intact for the firm.

Valuation Metrics

Under Armour stock is trading at a discount relative to its five-year average. Based on the stock’s price-to-sales ratio, UAA is trading at a discount worth 15.5%, suggesting that the market is yet to price in the firm’s top-line earnings.

Furthermore, Under Armour’s P/E ratio has settled at 22.4x with firm reason to believe that it could drop into undervalued territory amid the company’s stock repurchase program.

Wall Street’s Take

Turning to Wall Street, Under Armour has a Moderate Buy consensus rating, based on 15 Buys and eight Holds assigned in the past three months.

The average Under Armour price target of $25.70 implies 50.8% upside potential.

Concluding Thoughts

Under Armour is undervalued after a systemic sell-off. It’s possible that the company’s recent financial performance, and its stock repurchase program could ignite a renewed bull-run.

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