Under Armour is getting hit after Macquarie slashes its price target

Under Armour is getting whacked after Macquarie downgraded the stock and slashed its price target by 20%. The company is trading 7.85% lower to $US13.01 on Tuesday.

Macquarie’s view on Under Armour is so dire that the firm suggested the company might have to raise new capital at some point in the future. Under Armour’s decline has been much worse than investors have realised, analyst Laurent Vasilescu wrote in a client note.

While the rest of Wall Street is expecting 2018 revenues to be 4.6% higher than the previous year, Vasilescu is expecting a decline of about 1% for Under Armour. He argues that only looking at the company’s income statement fails to tell the whole picture. While Under Armour has boosted its revenue number by adding several new wholesale retailers, sales at existing partners have slipped.

In 2017, Under Armour started selling its product in Kohl’s, Famous Footwear and Designer Shoe Warehouse. Combined, the three partners added $US120 million of revenue, which helped mask a 2.1% decline in revenue, sans new partners. In North America, where the athletic apparel industry competition is heating up, Under Armour saw a 7% year over year decline in sales, according to Vasilescu.

If sales continue to decline like this, and the company continues to spend heavily to compete with the likes of Nike,Lululemon, Adidas, and others, it could be forced to raise more money. Vasilescu expects that doing so through a debt offering would be preferable to diluting the shareholder’s stake by selling shares, though it would be expensive due to a lacklustre rating from the credit rating agencies.

Vasilescu rates Under Armour an “underperform” with a price target of just $US8, which is $US43.7% lower than the company’s current price and 20% lower than Macquarie’s prior $US10 price target.

Under Armour is down 5.55% this year.

Read more about how Nike is going into “battleship” mode.

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