Under Armour Inc. (NYSE: UAA) is still working through many problems before the company can be considered in a successful turnaround. It has managed to grow revenues, but in recent years that growth slowed to a crawl. This year is expected to see roughly an 18% sales drop, but investors at the end of 2020 are looking out to see what Under Armour might do in 2021 and into 2022.

Independent research firm Argus has raised Under Armour to Buy from Hold, and the firm assigned a $20 price target. Argus points out that the shares have risen some 46% over the past quarter, but it said that the recent earnings report rising from the prior year and beating expectations looks attractive.

Many fundamental analysts do not get into stock charts, at least not directly. Argus indicated that the technical view for Under Armour is that its shares are in a bullish pattern. It even references the data going to back to March of higher highs and higher lows.

Argus now believes that Under Armour’s prospects for an earnings recovery are making current valuations attractive. The firm also pointed out that demand for its performance apparel has been improving, along with demand for its footwear and other accessories.

Another positive view is that management has been keeping a close watch on operating costs. With stable costs now in place, there is confidence in the near-term outlook with guidance reinstated.

The company’s annual guidance was for revenue to be down in the high-teens rate, but for the fourth quarter, revenue is now expected to be down at a low-teens rate rather than a prior forecast for a 20% to 25% decline. For the year, Under Armour’s adjusted loss is expected to be $0.47 to $0.49 per share.

While Under Armour has an agreement in place to sell MyFitnessPal for $345 million, the company also plans to cease development of the Endomondo platform at the end of 2020. The Argus report noted that the MapMyFitness platform (MapMyRun and MapMyRide) is expected to remain a crucial element of Under Armour’s digital strategy, along with its connected footwear business.

Again, analysts tend to look forward rather than backward for their upside call. Argus said that Under Armour is valued at just 10 times the firm’s preliminary earnings per share estimate for 2022. In that year, a full recovery in the underlying businesses is expected, and that earnings valuation is handily below other apparel companies.

While Argus is very bullish here, it pointed out some risks in the Under Armour story. Nike, Adidas and The North Face are already very well-heeled competitors, and while consumers recognize the benefits of the athleisure products, Argus noted that there is becoming more rivalry from similar products from the likes of Walmart and Kohl’s. Argus also pointed out the shoe business is a risk and that it sees the business as a more complex area than apparel, noting that it is highly competitive and generally comes with lower gross margins.

Argus also warned that, because of high current valuations and with a lot baked into existing expectations, Under Armour’s shares are subject to sharp selloffs if it disappoints investors. And, of course, it faces coronavirus risks.

Remember that no single analyst report, no matter how bullish or bearish the case may sound, should ever be the sole basis for buying or selling a stock. We have tracked these other recent analyst calls made by sell-side firms after earnings with mixed reports:

• Wells Fargo upgraded it to Overweight from Equal Weight and raised its target to $23 from $15 on November 17.
• RBC Capital Markets started coverage at Sector Perform with a $16 target on November 12.
• Morgan Stanley reiterated its Equal Weight rating but raised its target to $12 from $7 on November 3.
• Stifel raised its rating to Buy from Hold and raised its target to $17 from $11 on November 2.
• Credit Suisse maintained its Neutral rating and raised its target from $11 to $13 on November 2.
• Wedbush Securities reiterated its Neutral rating and raised its target from $10 to $13 on November 2.

Under Armour stock traded under $14 a share when it reported earnings, but the stock has been creeping up in the past three weeks. Wednesday’s move was up 1.8% at $16.40, and the 52-week trading range is $7.15 to $21.96. It was briefly a $49 stock back in 2015, but that was when the growth rates were much higher.

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