CFRA Research analysts downgraded Under Armour (NYSE:UA) (UAA) stock to Sell from Hold, and lowered their 12-month price target to $5 from $7.
The new price objective implies a downside of more than 33% from the current share price.
The adjustment is rooted in a valuation of 10 times the estimated earnings per share (EPS) for the fiscal year ending in March 2024, according to analysts.
The revised target is significantly below that of industry competitors such as Nike (NYSE:NKE) and Lululemon (NASDAQ:LULU),” reflecting our view of significant operational underperformance and bloated inventory,” analysts wrote.
“We maintain our FY 24 EPS estimate of $0.50 and lower our FY 25 EPS by $0.05 to $0.50. We believe UAA isn't investing enough back into the business to improve operating metrics and continues to buy back shares instead,” analysts said.
CFRA added that UAA has yet to demonstrate a consistent ability to generate free cash flow in the last two years, which should be the company’s priority, rather than share repurchases.
The company has undergone numerous leadership changes recently and is currently directing efforts toward optimizing its North American business, which lags behind competitors in nearly every financial aspect.
“We believe investors are growing weary of overpromising and underdelivering and that is the main reason shares haven't been able to trade back above $10,” analysts noted.