Schaeffer's Trading Floor Blog

How Unwinding Skepticism May Boost Under Armour Inc (UA)

Skeptical analysts and shorts may hold the key to UA's next rally

by 1/27/2014 3:12 PM
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From a technical perspective, Under Armour Inc (NYSE:UA) has gained an impressive 72.7% on a year-over-year basis to wink at the $83.25 level. Moreover, on Jan. 10, the shares hit an all-time high of $88.77, before consolidating their gains atop their ascending 80-day moving average. As a matter of fact, this trendline has served as a layer of support since last March.

Daily Chart of UA since March 2013 With 80-Day Moving Average

Despite UA's outperforming ways, Wall Street views the athletic apparel company with skepticism. Among the 27 firms covering the shares, only eight have given them a "buy" or better rating, compared to 18 lukewarm "holds" and one "sell" recommendation. Furthermore, the stock's consensus 12-month price target checks in at $82.60 -- a discount to UA's current price. In other words, a round of analyst upgrades and/or upwardly adjusted price targets could come down the pike in the not-too-distant future. Just this morning, in fact, Wedbush raised its price target for UA by $5 to $90.

The shorts have also grown increasingly pessimistic toward Under Armour. In the last two reporting periods, short interest increased 3.1% to 8.41 million shares -- or 10.4% of the equity's total outstanding float. At the stock's average daily pace of trading, it would take nearly two weeks to cover the shorted shares. In other words, the door is wide open for a potential short-covering rally in the days and weeks ahead.

On the fundamental front, one upcoming event to note is Under Armour Inc's (NYSE:UA) fourth-quarter earnings report, which is due out before the market opens this Thursday. Looking back, the company has bested bottom-line estimates in each of the past four quarters. Analysts are expecting a per-share profit of 53 cents this time around -- a 6-cent improvement over UA's year-ago results.

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