Generals: Under Armour Quick Valuation Overview

Under Armour

Generals: Quick Valuation Overview

December 4, 2016


SUMMARY INFO

  • NYSE: UA (formerly UA.C)
  • Recent PPS: $24.77
  • Shares Out: 442.16
  • Market Cap: $10,952
  • Debt: $1,074
  • Enterprise: $12,026

DISCUSSION

I am at the very early stages of my due diligence on Under Armour, but wanted to quickly put some early thoughts down on ‘paper’. In short, it appears Under Armour is a busted growth story with seemingly little in the way of valuation to support the downside. The cloud of uncertainty currently hovering over UA’s stock price is precisely the cloud under which I would like to consider initiating a long-term position in AMZN, as noted in this late September write-up. And in 180 degree opposition to AMZN’s current overly loved stock price, I want to veer materially to the upside vis-a-vis ‘Street’ and market price targets when it comes to my UA valuation work.

The market is disappointed with long-term EBIT margin guidance, and the stock has reacted accordingly. But with UA 2016E sales at $4.9 billion versus $32.4 billion for NKE, UA ‘should’ be targeting almost no operating profit in order to build out its scale sooner rather than later. Though one potential area of long-term concern is how aggressively UA pursues its “Connected Fitness” business. If they are aggressive, it is not a stock to own, IMO.

#1 valuation question: can UA close the 7.56% SG&A margin gap with NKE over the long-term? If so, at what level of sales?

In my rough initial valuation work, I assume UA hits its 2018 sales goal of $7.5 billion, then grows to approximately $14 billion by 2022. I assume UA closes 75% of the SG&A margin gap with NKE by 2022.

If UA trades for 20x 2022 EPS, discounted back at 10% UA is worth approximately $38. (This ignores current debt, as UA more than likely would turn net cash positive by 2022.)

* * * * * * * * * * *

Again, very early stages of analysis here – but as long as UA does not make an aggressive push into Connected Fitness in 2017 (or guide to it…), from a sentiment/market/trading dynamic perspective my early thought is that this stock could easily clear +50% in 2017.

UA Analysis December 2016

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