Under Armour Bulls, Your Time May Have Come

While Under Armour Inc (NYSE: UAA) has struggled after its 26 consecutive quarters of top-line growth came to an end, the appointment of former Aldo CEO Patrik Frisk as chief operations officer and a “renewed focus” on financial performance could translate into a near-term inflection point, according to KeyBanc Capital Markets.

The research firm upgraded Under Armour from Sector Weight to Overweight and maintains a $20 price target in a Sunday note.

At the same time, KeyBanc downgraded VF Corp (NYSE: VFC) to Sector Weight. The parent company of brands including Wrangler, Nautica, The North Face and Vans is fairly valued and “remains susceptible to any slowdown at Vans,” analyst Edward Yruma said in a note.

A New COO And Growth Opportunities

After KeyBanc analysts met with Under Armour CEO Kevin Plank, they concluded that the appointment of COO Frisk will drive operational focus and that the business has “meaningful growth opportunities” in international markets and footwear.

“The U.S. environment remains difficult, but we think that incremental weakness is likely more focused on the signature sneakers, and so relative underpenetration makes this less of a headwind,” Yruma said.

Under Armour has long-term strength and can find incremental growth opportunities in casual apparel, the analyst said.

Inflection Point On The Horizon?

Under Armour is taking an inventory write-down in the third quarter, which could indicate an impending trough, according to KeyBanc.

The $20 million write-down of unsellable inventory and $40 million goodwill impairment in the third quarter were announced on Under Armour’s second-quarter conference call earlier this summer.

“While we generally frown on inventory write-downs, a final expungement of distressed inventory can be a precursor to an inflection point in operational performance,” Yruma said.

Related Links: 

Breaking Down The Footwear Sector: Adidas Pipeline Still Strong, Under Armour Under Pressure

Despite The Noise, Athletic Trends Can Return To Growth