Coraopolis, Pa.-based sporting goods retailing corporation Dicks Sporting Goods Inc. (DKS) has seen its shares plummet on weaker-than-expected earnings this week. In line with its struggling retail peers, Dick’s has suffered from a surge in ecommerce, driven by giant Amazon.com Inc. (AMZN), as firms no longer find building more brick-and-mortar stores a viable way to boost sales. As a result, investors and analysts alike have pointed to an industry downturn, prompting UBS to downgrade Dick’s from buy to hold.
Not all are so bearish, however. Analysts at Jefferies have found a silver lining in Dick’s dismal Q1, indicating it’s a good opportunity to buy Baltimore-based sportswear company Under Armour Inc. (UAA). Jefferies’ Randall J. Konik suggests that Under Armour is “one of the few brands that matters in the athletic space,” and has a “significant opportunity to scale [North America], footwear, int’l women’s and lifestyle [long term].”
Analysts See Significant Upside
Under Armour shares are trading near four-year lows as investors worry over heightened competition from rivals Nike Inc. (NKE) and revived German players Adidas AG (ADDYY) and Puma SE (PMMAF). A series of underwhelming quarters and various headwinds such as reputational risk over Chief Executive Officer (CEO) Kevin Plank’s alleged Trump positivity caused the stock some trouble.
“With valuation compressed and overly negative sentiment, we see significant upside,” wrote Konik. Dick’s Q1 comps gained 2.4% year over year, falling short of expectations yet showing strength in golf and footwear, two areas where Under Armour has “significant presence.”
The Black Mark of Markdowns
Further, the analyst highlighted markdowns of Adidas apparel against full-price selling for Under Armour as an encouraging sign. Jefferies foresees Under Armour’s women’s line, comprising just 30% of total apparel sales at $1 billion, positioned to scale and present further upside. Jefferies maintains a buy rating and a $28 price target on UAA shares.
“Just as today’s adults grew up with Nike, we believe UAA’s resonance with younger generations will drive brand loyalty down the road,” wrote the analyst. (See also: Kohl’s Dips as New Partner Under Armour Prospers.)