Why This Analyst Says Investors Are Underestimating This 1 Stock

This stock is flying under most investors’ radars, but this analyst says now’s the time to consider adding it to your Buy list. Here’s why. 

With all eyes glued to GameStop (NYSE: GME) and other Reddit-driven stocks this week, one analyst argues the market is overlooking this one stock.

Cowen analyst Oliver Chen upgraded his rating on Under Armour (NYSE: UAA) this week from Market Perform to Outperform, and raised his price target on the athletic apparel and footwear maker from $17 to $23 – 29% higher than the price as of this writing.

Chen said in a note that “consensus estimates are far too conservative” for Under Armour through fiscal year 2023, noting that his research points to improved sales with key wholesale partners which indicates the company’s fourth-quarter top- and bottom-line guidance is overly cautious.

The Cowen analyst says Under Armour will see a continued rebound in brand momentum which will fuel sales above estimates and lead to higher profits. This rebound comes on the heels of Under Armour launching a brand with basketball superstar Stephen Curry late last year that aims to achieve some of the success of Nike’s (NYSE: NKE) partnership with Michael Jordan, and the company’s Project Rock collaboration with Dwayne “The Rock” Johnson. 

According to Chen, Under Armour is “refining and elevating” its products, which “appears to be resonating with consumers and retail partners.”

“We see the potential for the business to reach a 10% EBIT—earnings before interest and taxes—margin, 25% return on invested capital and $400 million in annualized free cask flow which suggests the stock is undervalued on both a relative and absolute basis,” Chen said in the note. 

Chen isn’t the only analyst growing more bullish on the stock. 

In fact, the share of analysts with a Buy rating on the stock has risen the nearly 30% this month—more than double the rate in October—as Wall Street gains confidence in the turnaround plan of CEO Patrik Frisk. Frisk took over the top job a year ago from founder Kevin Plank, and has cut costs and sold a fitness app the company purchased five years ago when its stock was double what it is now.

Deutsche Bank analyst Paul Trussell boosted his rating on the stock last week from Hold to Buy, and raised his price target from $15 to $22.

Trussell argues that Under Armour presents a “compelling margin story” as it builds on the steps the company took prior to the coronavirus pandemic. 

Under Armour’s fiscal year 2019 margin for EBIT was 4.5%, 7 percentage points below its peak five years earlier. Trussell believes lower costs, better inventory control, stronger pricing, and ongoing restructuring can send margins higher again, and sees an increase of around 40% from 2019 levels by fiscal 2023. 

While Trussell acknowledges Under Armour may still lack some of the fashionable sportswear that has benefited rivals including Nike and Lululemon (NASDAQ: LULU), he says “revenues can still accelerate to a mid-single-digit compound annual growth rate, in our view, buoyed by a supportive athleisure backdrop, international expansion, and a North American segment that returns to growth after four years of declines.”


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