“Sell Less, Charge More, and Earn More” should be Under Armour’s (UAA, UA) new strategy which could lead to increased profits and improved margins and ultimately resulting in a healthier company with a higher share price, says BMO Capital’s Simeon Siegel.
“Our brand ubiquity analysis suggests that Under Armour is under-earning because it’s overselling,” Siegel says in Monday’s research note.
“Under Armour’s revenue show it remains one of the largest brands in history, yet its profits tell a different story,” Siegel says, adding that his math suggests that if UA were to raise like-for-like prices by 10%-20%, it would increase profit dollars as long as it lost fewer than 22% to 37% of units.
Siegel reiterates his Outperform rating on Under Armour (UAA, UA) with a new $11 price target, a 44% upside to Friday’s closing price.
First quarter results and last week’s announcement to close a distribution facility show the beginning efforts by the company to be better rather than bigger, a strategy that could be a “powerful earnings unlock ahead” with BMO’s Siegel outlining a path to $0.60-$1.09 of earnings power, a $10-$12 share price and $16 blue sky target.
Under Armour (UA, UAA) shares are more than 5% higher at midday on Monday, extending a string of outsized daily gains to a third straight day for a cumulative gain of ~19%.
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