Raymond James Upgrades Under Armour Despite Sluggish Year

Admittedly, Under Armour NYSE: UAA does still have some panache in the market and some impressive connections to the world of fighting sports, the stock has been taking a beating worse than anything seen in the ring lately. However, it turns out that Under Armour does have at least one force in its corner, as Raymond James NYSE: RJF recently upgraded its stance on Under Armour to a full “strong buy.”

Under Armour On the Ropes?

Under Armour's status, these days has been looking a lot like Rocky Balboa demanding to be cut so he can actually see who he's fighting. While the shares enjoyed a 52-week high back in July, it didn't last, and the company is now trading in bear territory at last report, off 35% from that high. As you'll remember from our Gap coverage, all it takes to be in “bear territory” is to be trading with 20% lost off a 52-week high. This abundantly qualifies.

It certainly didn't help when Under Armour confirmed that it was under investigation not only by the Securities and Exchange Commission (SEC) but also by the Department of Justice (DOJ) for issues related to its accounting practices. That was earlier this month, and it was enough to lead a loss of almost 15% in that time alone.

However, Raymond James doesn't figure that Under Armour will be in bear territory for much longer. It's set a $30 target on the stock, which means the company is expecting some substantial growth in the share prices to get them up from their current price of $19.19 as of this writing. Given that the stock closed yesterday at $18.02, the notion that it could gain an extra $11 per share isn't so far out of line. Now, Raymond James considers the company to be a “strong-buy” rather than the “outperform” it was previously rated as.

Under Armour Gonna Fly Now?

Again like Rocky Balboa, Raymond James considers the stock to be “underrated” and an “underdog” in the field. It might seem out of nowhere, but the Raymond James team has some support for this notion. While it, via analyst Matthew McClintock, noted that Under Armour's latest sales period has been as rocky as the aforementioned underdog, Under Armour has been bulking up its infrastructure and getting ready for some significant growth going forward.

In fact, McClintock noted, not only is a growth pattern expected for the next several years, but an annual growth rate of fully 40% is expected through 2023.  Driving that optimistic forecast is significant growth is Under Armour's ability to innovate, particularly when it comes to footwear. Product innovation is, after all, is the key to product differentiation, and product differentiation is vital in any retail application, apparel included. It's actually one of the better differentiation points; no one wants to start a price war in retail thanks to the drag on profitability it can represent.

Dazzling Footwork and a Good Right Hook

The picture for Under Armour isn't what anyone would really call positive right now. With a government investigation in the works and a stock price that's in rapid descent, it's hard to see how a “strong-buy” recommendation comes out of that. There is a way, of course, but it does seem a little unlikely.

First, Raymond James—in discussion with other investors—noted that the investigation doesn't seem to be hurting investor sentiment any. The consensus expectation notes that the event will “...largely be immaterial...” to investor sentiment going forward. If even investors believe that investors aren't going to care, well, that's certainly a point in its favor.

Couple that on to reports that Under Armour is really stepping up its product innovation, and you really do have a recipe for a serious comeback potentially afoot. After all, if investors really don't care about the investigation, and the company is poised to release some new products going forward that can't be readily duplicated by the rest of the market, then that's definitely in its favor.

The news sounds good for Under Armour to make a comeback, and with it, demonstrate that a plucky underdog can win outside of the movies.