Under Armour, Inc.

 

UAA Details
 
UAA Reopens Stores in North America: Under Armour, Inc. (NYSE: UAA) is engaged in designing, marketing, and distribution of authentic athletic footwear, apparel, and accessories for a broad range of sports and fitness endeavors in the United States and internationally. Recently, the company reopened ~50% of its owned stores in North America in a phased manner. The company has also planned to reopen stores on a case-by-case basis in discussion with the government and public health officials. The company reopened its stores in countries outside of North America in accordance with the local guidance and consultation with government officials across these markets.
 
1QFY20 Key Highlights: During the quarter, the company reported a diluted loss per share of $1.30. In 1QFY20, net revenues stood at $930.2 million, down 23% year over year. On currency neutral basis, revenues declined ~ 22% year over year. Apparel revenues for the quarter stood at $598.3 million, down 22.8% year over year, whereas, revenues from Footwear plumped 28.3% and came in at $209.7 million. North America’s net revenues stood at $609 million, down 27.8% year over year.  Revenues from the international business came in at $287 million, down 12.5% year over year. During the quarter, gross margins stood at 46.3%, up 110 bps. SG&A expenses increased 8.5% year over year. The company exited the quarter with cash balance of $959.3 million, and long-term debt (net of current maturities) amounted to $593.3 million. Presently, UAA has ~$700 million outstanding under the credit facility.
 
 

Key Highlights (Source: Company Reports)
 
What to Expect:  The company expects capital expenditures to be ~$100 million in FY20, as compared to the previous projection of $160 million. The company stated that it is seeing positive trends across its e-commerce business in North America and EMEA since the beginning of the second quarter. UAA has been taking essential measures to stay afloat in the COVID-led crisis. The company also intends to lower its FY20 operating expenses by ~$325 million owing to strategic implementations, cost cutting measures, provisionally laying-off associates, reducing of non-essential operating costs, and delaying scheduled capital expenditures. Further, UAA projects ~$40-$60 million of pre-tax benefits in FY20.
 
Risks: The company is battered by unfavorable impacts from coronavirus related discounting and changes in foreign currency. Further, 1QFY20, the bottom line was impacted by lower revenue base, higher SG&A expenses, and increased interest expense. Also, loss of sales from closed stores and stiff competition from major retailers remains potential headwinds.
 
Stock Recommendation: The stock of UAA closed at $9.57 with a market capitalization of ~$4.3 billion. The stock made a 52-week low and high of $7.15 and $27.72, respectively, and is currently trading at the lower band of the range.The stock of the company went up by 15.86% in the past three months. On Mar’20, debt to equity of the company stood at 0.77x, higher than the industry median of 0.58x. On the valuation front, the stock is trading at an EV/EBITDA multiple of 20.7x as compared to the industry median (Consumer Cyclicals) of 7.7x on TTM (Trailing Twelve Months) basis. Hence, considering the current trading levels, higher debt to equity ratio, current dampened business activities and bleak industry outlook led by Covid-19, we suggest investors to ‘Avoid’ the stock at the current market priceof $9.57, down 1.75% on 1 July 2020.

 
UAA Daily Technical Chart (Source: Refinitiv, Thomson Reuters)
 
 

Brunswick Corporation

 

BC Details
 
BC Partners With Frydenbø: Brunswick Corporation (NYSE: BC) is engaged in promoting all its foremost consumer brands, which consist     of Mercury and Mariner outboard engines, MotorGuide trolling motors, Mercury MerCruiser sterndrives and inboard engines, Attwood and Whale marine parts and accessories, to name few. In a recent update, the company stated that it will repay ~$200 million from its revolving credit facility on 26 June 2020. In another update, the company stated that Mercury Marine, a division of BC, has inked a partnership deal with Frydenbø to become the favored engine partner of the company’s boat brands Sting and Nordkapp, across the global market.  The move is in-line with BC’s strategy to achieve its high goals for growth in recognized markets.
 
Other Recent Updates: Recently, the company announced that it has appointed Ryan M. Gwillim as Senior Vice President and Chief Financial Officer of the company, effective immediately.  Mercury Marine recently also stated that it has entered into a strategic supply agreement with BRP to be the supplier for BRP owned boat brands Alumacraft, Manitou, Quintrex & Stacer.  
 
1QFY20 Key Highlights: During the quarter, the company reported consolidated net sales of $965.5 million, down 8.1% year over year. Adjusted Diluted EPS for the quarter stood at 96 cents per share, up from 94 cents reported in the year-ago period. Revenues from Propulsion Segment stood at $448.6 million, down 0.8% year over year. The company exited the period with cash and marketable securities of $515.3 million. Cash used by operating activities during the quarter came in at $92.7 million, up by $19.5 million year over year, on the back of elevated usage of seasonal working capital. Operating margins for the quarter came in at 11.7% on an adjusted basis. The quarter marked the strength in BC’s marine-focused portfolio amid the COVID-19 led disruption.
 

Key Financial Highlight (Source: Company Report)
What to Expect:The company continues to make higher investments in its business and continues to drive shareholders’ value, on the back of its strong financial profile and healthy balance sheet. The company’s strategic portfolio actions and cost reduction initiatives aided it to build a strong pipeline of new products and position it well to stay strong in the near-term economic conditions. For FY20, BC expects free cash flow to be ~$125 million. Capital expenditure is expected to be in the range of $150 to $160 million.
 
Risks:On the flip side, the economic uncertainty, and consumers changing behaviours, might adversely affect the company’s financial performance. Further, any material changes in the U.S. trade policy, tariffs, and regulations may have a material adverse impact on its business activities. Further, foreign currency fluctuation and stiff competition remain potential headwinds.
 
Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)
 
EV/Sales Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)
 
Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months
 
Stock Recommendation: The stock of BC closed at $64.52 with a market capitalization of ~$5.1 billion. The stock made a 52-week low and high of $25.22 and $67.39, respectively, and is currently trading at the upper band of the range.The stock of the company went up by 106.4% in the past three months. The company’s focus on critical product programs and digital initiatives is likely to drive earnings growth and market share gains, in the future. We have valued the stock using EV/Sales multiples based illustrative relative valuation method and arrived at a target price with the correction of single-digit (in percentage terms). Thus, it can be said that the stock of BC is overvalued at current juncture. Hence, considering the aforesaid facts, current trading levels and expected correction, we give an “Expensive” rating on the stock at the current market price of $64.52, up 0.8% on 1 July 2020.

 
BC Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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