Under Armour (NYSE:UAA) Building Toward Impressive Future

It's been nearly three months to the day since we last talked about Under Armour (NYSE:UAA), and back then, things weren't looking so bright for the company. A recovery was in progress, but it was a slow one at best. Now, however, there are fresh gains afoot for the company, and one analyst is upgrading perspective on Under Armour's operations going forward.

A Long Slow Recovery

Back in August, we noted that the company boasted an earnings beat for the first time in a while. The company managed to beat both topline and revenue estimates, but given that the company's revenue was down 40% over the same time last year, the bump received from investors at the time didn't last long.

Fast forward to the present day, and the company boasted a second earnings beat in reporting on Friday. Higher demand for the company's apparel products—particularly exercise wear for those working from home and desiring a more comfortable approach to doing so—drove the figures for the quarter, and the full-year outlook wasn't looking half bad either, all things considered.

Under Armour revealed that full-year revenue was set to be down, and fairly substantially. Under Armour was looking for a percentage-rate loss somewhere in the “high-teen” level, which actually improved on earlier projections calling for a 20% to 25% loss for the second half. Given that analysts were projecting 25.7% losses, that's quite a step forward.

Reinforcing the Under Armour with New Strategies

So how does Under Armour look to pull off such a move in the face of a very inhospitable economy for retailers, especially clothing retailers? It's already taken a couple steps in that directly. First, the company is raising cash; it recently announced the sale of MyFitnessPal, a connected fitness operation, that it picked up back in 2015. It's taking a fairly substantial loss on that sale, too; Under Armour picked up MyFitnessPal for $475 million, and it's poised to sell it to Francisco Partners for $345 million. Additionally, the company is also shutting down the Endomondo platform, which it picked up that same five years ago for $85 million.

Under Armour's stated reason for doing this was to better focus on the “Focused Performer,” its target market, through active simplification of the business. That simplification is also seen in its distribution channels; reports suggest the company is leaving between 2,000 and 3,000 wholesale locations throughout North America over the next two years. That will still leave 10,000 locations in the company's portfolio, but it's clear the company has learned the great pandemic lesson of 2020 and is focusing on direct-to-consumer applications.

The Analysts are Skeptical...But May Be Turning

Meanwhile, based on our latest research, the analyst community is starting to turn its attention back to Under Armour in a positive light. While the company is still under a “hold” consensus rating, its makeup has shifted in a pretty grandiose fashion. Just 30 days ago, Under Armour carried two “sell”, 19 “hold” and four “buy” ratings.

Now, the “sell” and “buy” numbers are the same, but one “hold” has jumped ship and a “strong buy” rating is now in place, something not seen since the figures from 90 days ago. Stifel Financial upgraded from “hold” to “buy”, on the strength of improved revenue among several factors.

It's not alone, either; today alone, five separate analysts have upgraded their price targets on the company, and back on Friday, Jefferies Financial Group repeated its “buy” rating on the company with a price target upgraded from $13 per share to $20. Some have suggested that analyst consensus is already unduly negative on Under Armour, as competitor Nike (NYSE:NKE) posted a similar surprise earnings beat, yet with lower sales growth than Under Armour itself had.

A Potentially Explosive Future to Come

Adding up all the various elements suggests that something big is afoot with Under Armour. The company has nearly $1 billion in its coffers after the MyFitnessPal sale, and it's pulling back on its distribution reins. It's shifting its strategies, and it's got more than enough cash to carry out just about anything at this point. What it will actually do with the rest of the year is unclear as yet, but it's got enough catalysts stockpiled to make something explode.

With a share price better suited to buying a large pizza than a share of a corporation, taking a position in Under Armour may be rewarded down the line. It's certainly got some big plans afoot, and getting in is still pretty easy.