Under Armour, Inc. (UAA) shares opened sharply higher before giving up their gains by mid-morning. Goldman Sachs analyst Alexandra Walvis upgraded the stock to a Buy and raised her price target to $28.00, representing a nearly 37% premium to the prior close. The analyst believes that gross margins are set to expand as Under Armour executes quality of sale initiatives, and she noted that the recent progress on cost and inventory management has been encouraging. She also added the stock to the firm's Americas Conviction List.
The apparel company's shares have risen about 15% so far this year but remain well below their 52-week highs of $24.96 made back in June. After the company reported strong third quarter financial results, many investors are hopeful that it can turn around after two tough years. Management committed to taking a more disciplined approach to growth during its Analyst Day and ditched "athleisure" to refocus its efforts on apparel for athletes.
In mid-December, the company announced much anticipated five-year growth targets. Management expects low-double-digital growth by 2023 along with gross margins of at least 48%. Earnings per share are expected to grow at a robust 40% compound annual growth rate with about $2.5 billion in cumulative cash flow projected between 2019 and 2023, as well as a 20% return on invested capital.
From a technical standpoint, the stock experienced a double top late last year that led to a significant decline to new reaction lows. The stock rebounded in late December toward its 50- and 200-day moving averages, which were about to experience a bearish crossover. The relative strength index (RSI) appears a bit lofty at 61.26, but the moving average convergence divergence (MACD) remains in a bullish upswing. These indicators suggest that there could be some near-term consolidation before the stock moves significantly higher.
Traders should watch for a breakout from the 50- and 200-day moving averages toward R1 resistance at $22.91 over the coming sessions. With the lofty RSI reading, the stock could see some near-term consolidation above these moving averages before reaching R1 resistance. If the stock fails to break out, traders could see a breakdown from trendline and pivot point support at $19.72 toward its lows or S1 support at $11.28, although this scenario appears less likely to occur.
The author holds no position in the stock(s) mentioned except through passively managed index funds.