UA Under Armour: Underdog / Sleeping Giant

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	Josh Warner-Burke
	Baltimore User since Nov 2007	52
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Underdog / Sleeping Giant

Compare the size of their brand and the market cap of the stock. They don't even come close. This has been my basic pitch for a few years now with home town Baltimore favorite Under Armour. But not everyone shares my enthusiasm for the athletic apparel and footwear maker.

The latest downgrade to UA stock came with this explanation:

Jefferies downgraded Under Armour Inc. (NYSE: UA) to a Hold rating from its previous rating of Buy as they ... still do not see UA's footwear platform making any headway in the company's earnings and that the company's best attempt to save it will be when school starts back up in 6-9 months.

The footwear business takes time, and the analysts who follow Under Armour have made it the dominant story since early 2008. In that time, it is true: they haven't had instant credibility in footwear. Nike is a very entrenched brand, both among the general population and among basketball players. It will take time to crack that nut.

But the footwear part of the story should not totally obscure the amazing growth they are experiencing in both men's and increasingly women's apparel. Under Armour is only starting to become an international brand. Over the NFL season UA made some key signings, including most notably Tom Brady.

They are also making some moves in the basketball space, launching the Micro G line with Brandon Jennings as the face of the shoes. They are starting to sponsor events like this combine event:

http://www.slamonline.com/online/other-ballers/2010/10/under-armour-combine-360-day-one/

This company is savvy with marketing and making the most of their endorsement dollars, so I personally am confident that they will (slowly) encroach on the basketball shoe market that Nike has hitherto cornered.

In case you are not aware, by market cap Nike is 14 times as big as UA. That is in essence what I mean by compare the size of their brand (in a relative sense) with their market cap.

This pick is made to culminate after earnings which according to Ameritrade are expected the week of January 24, 2011. I think on earnings the stock could regain $62-64 and this is a confidence 10 pick.

Nike has had it's time in the sun. Today's athlete is hungry for a new leader in athletic apparel. Click-clack. Can you hear UA coming, Nike?

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What People Are Saying...

Josh Warner-Burke said at 1/6/11 11:45 PM Price action was $54.64 -0.90 (-1.6%)

Great profile on CEO Kevin Plank and his vision for the company http://knowledge.wharton.upenn.edu/article.cfm?articleid=2665

Mike Barkett said at 1/7/11 12:19 AM Price action was $54.64 -0.90 (-1.6%)

I agree and want to get back into UA, but I am not sure about the timeframe. A little nervous about this market right now.
UA branding has reached the tipping point. It's literally everywhere, and I don't just mean in MD. When I travel, I see someone wearing UA gear on the airplane and in the destination city, no matter where in the world I am. If you look, you'll notice college and pro coaches, players, TV personalities, even actors in commercials for *other* brands, prominently displaying the UA logo on a hat or shirt.
Regarding footwear, does anyone know if they are playing in this new flat-sole running sneaker space that is gaining so much popularity? i.e. do they have a competing product to the Nike Free?

Ian Hall said at 1/7/11 3:26 PM Price action was $53.42 -1.22 (-2.2%)

Very bold estimate, picking up nearly $10/share in just over a month. Agree with Mike that the stock will get there and then some, but I'd feel more comfortable with an expanded timeframe. In response to Mike's inquiry about the flat sole, not sure whether or not UA's got a dog in that race, but it may well be a fad. I've heard a lot of love-hate comments about them.

Josh Warner-Burke said at 1/10/11 10:16 PM Price action was $55.22 1.67 (+3.1%)

I read an article about that genre of shoes that supposedly helps tone your legs and butt and whatever, and the 'so-called experts' said it was complete nonsense.

A better question for me is, among basketball players, is anyone taking the Micro G line seriously?

Josh Warner-Burke said at 1/10/11 10:18 PM Price action was $55.22 1.67 (+3.1%)

When Oregon and Auburn take the field tonight to do battle for the BCS National Championship, two shoe and apparel brands will be facing off as well: Nike versus Under Armour.

http://www.cnbc.com/id/41000858

Mike Barkett said at 1/10/11 10:36 PM Price action was $55.22 1.67 (+3.1%)

I don't understand, are you saying the butt toner shoes are the flat soled shoes? Shoes like the Free are supposed to go easier on your back and knees, and there is a good bit of research to back that up. This style of shoe is becoming more popular among athletes, runners, hippies and hipsters alike.

Josh Warner-Burke said at 1/25/11 10:14 AM Price action was $53.20 -0.32 (-0.6%)

Jefferies analyst: EPS expectations for the quarter are currently above guidance (36c vs. 34-35c range). We are at 38c and expect upside to come from the company's ability to fulfill strong demand in the quarter thanks to a healthy inventory position and replenishment capability. UA provided 2011 preliminary sales and income growth of 25% on it 3Q10 call. That equates to $1.55 based on its current 2011 guidance of $1.23-1.24. While the actual EPS number is likely to move up on a 4Q expected beat, we believe management will only reiterate the growth rate for 2011 given a lack of visibility into the cost side and the fact that it's still early.

Josh Warner-Burke said at 1/26/11 12:14 PM Price action was $53.33 0.33 (+0.6%)

Forbes article, UA to start selling a line of 'charged cotton' shirts, Monte Burke sits down with Kevin Plank to discuss why:

http://blogs.forbes.com/monteburke/2011/01/26/in-an-about-face-under-armour...

Josh Warner-Burke said at 1/27/11 7:35 AM Price action was $53.88 0.88 (+1.7%)

4Q Earnings .44/share vs consensus .37 http://money.msn.com/business-news/article.aspx?feed=PR&date=20110127&id=12...

Josh Warner-Burke said at 1/27/11 9:48 AM Price action was $53.88 0.00 (0.0%)

On the heels of this great earnings report they announce the launch of Charged Cotton apparel. "Extensive testing helped to create the Under Armour Charged Cotton Collection, which is the softest, most comfortable material Under Armour has ever produced. Staying true to the Brand's heritage, Under Armour's Charged Cotton wicks away moisture with signature technology and dries five times faster than ordinary cotton. Charged Cotton also offers the much-needed stretch and recovery that is integral to training, resulting in lower "cling force" and a stick-free fit."

Josh Warner-Burke said at 1/27/11 10:04 AM Price action was $56.84 2.96 (+5.5%)

Link cavalcade today, Leigh Drogen of Stocktwits with a thoughtful narrative about UA here: http://leighdrogen.com/stocks-meet-sports-under-armour/

Josh Warner-Burke said at 2/4/11 12:44 PM Price action was $63.20 2.94 (+4.9%)

I should have left this open, my target price was almost uncanny here with the stock at 63.70 right now. But I was concerned about getting shafted if the overall market turned lower. In real life, I'm making money off Feb calls for the 2nd time.