Plunge in Under Armour shares a buying opportunity, Jefferies says

Published Fri, Mar 24 201710:39 AM EDT

Jefferies raised its rating for Under Armour shares to buy from hold, predicting the company's earnings will beat expectations next year. Under Armour shares are down 35 percent this year through Thursday, with most of the decline occurring after the company gave weaker-than-expected 2017 sales guidance on its Jan. 31 fourth-quarter earnings report. The shares are also down 55 percent in the previous 12 months. The "results of our updated proprietary survey … [reveal the] UA brand has strengthened and athletic apparel demand is robust," analyst Randal Konik wrote in a note to clients Friday. "Our webscrapes, store work, and social trend analysis indicate to us an inflection has formed and the buying oppty is now. Our view is compressed valuation and neg. sentiment, ignore compelling growth over the next 2-3 years." Konik raised his Under Armour price target to $27 from $19, representing 42 percent upside from Thursday's close. The analyst cited a Jefferies' survey of 2,000 consumers showing Under Armour brand recognition is rising, the company is seen as "more stylish and functional," and future purchase intention is increasing. "In aggregate, we are encouraged with the more favorable perception of the Under Armour brand among consumers," he wrote. "We view survey responses related to perceived affordability as equally favorable, and indicative of consumers attaching a greater view of value to UA product for the price paid." In addition, the survey found that 25 percent more consumers are wearing athletic apparel four to five times a week versus three years ago, boding well for demand, according to the analyst. As a result Konik raised his Under Armour 2018 earnings estimate to 57 cents a share from 43 cents versus the Wall Street consensus of 51 cents. "UA is one of the few brands that matter in the athletic space. It has significant oppty to scale N.A. [North America], footwear, int'l, women's, and lifestyle LT [long term]," he wrote. — CNBC's Michael Bloom contributed to this story.

Under Armour sports shoes on display.

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Jefferies raised its rating for Under Armour shares to buy from hold, predicting the company's earnings will beat expectations next year.

Under Armour shares are down 35 percent this year through Thursday, with most of the decline occurring after the company gave weaker-than-expected 2017 sales guidance on its Jan. 31 fourth-quarter earnings report. The shares are also down 55 percent in the previous 12 months.

The "results of our updated proprietary survey … [reveal the] UA brand has strengthened and athletic apparel demand is robust," analyst Randal Konik wrote in a note to clients Friday. "Our webscrapes, store work, and social trend analysis indicate to us an inflection has formed and the buying oppty is now. Our view is compressed valuation and neg. sentiment, ignore compelling growth over the next 2-3 years."