Can Under Armour’s Stock Bounce By 30% Post Coronavirus?

Based on a comparison of Under Armour’s (NYSE: UAA) stock trajectory over recent months with that around the 2008 recession, we believe that the stock can potentially gain 30%, to reach almost $12, once fears surrounding the coronavirus outbreak are put to rest. A detailed comparison of Under Armour’s performance vis-à-vis the S&P 500 is available in our interactive dashboard analysis, 2007-08 vs. 2020 Crisis Comparison: How Did Under Armour Stock Fare Compare With S&P 500?

The World Health Organization (WHO) declared a global health emergency at the end of January in light of the coronavirus spread. The rally in the equity market continued till February 19 with the S&P 500 reaching a record high, but the trend reversed sharply over the following weeks. Under Armour stock lost 51% of its value (vs. about a 34% decline in the S&P 500) between February 19 and March 23. A bulk of the decline came after March 6th, when an increasing number of Coronavirus cases outside China fueled concerns of a global economic slowdown. Notably, though, the multi-billion dollar stimulus package announced by the U.S. government has helped the stock price recover 19% over recent weeks (vs. about a 29% gain in the S&P 500) to its current level around $9. Despite the recovery, the stock is still down 54% since the beginning of the year.

Under Armour’s Stock Fell Because The Situation On The Ground Has Changed

The decline in Under Armour’s stock is understandable, considering the impact that the outbreak and a broader economic slowdown are having on total consumption/consumer spending and the global apparel industry. Notably, the company derives a bulk of its revenues from the US which has become the new epicenter of the outbreak- recording the largest number of COVID-19 cases across the globe. Moreover, people are just not going to shop for luxury or even basic apparel products. Under Armour has temporarily shuttered stores outside the Asia-Pacific region which is further impacting the company’s performance. Under Armour also withdrew its earnings guidance provided after the release of its Q4 results (ending December), citing uncertainty relating to the potential impacts of COVID-19 on the company’s business operations – including its duration and its impact on the overall demand for merchandise. In a bid to save costs, Under Armour has furloughed a majority of store associates in the US effective April 12, 2020.  The outbreak of the virus has led to a steep fall in demand and we believe Under Armour’s Q1 2020 results will confirm this reality with a drop in revenues across segments. If signs of coronavirus containment aren’t clear by the Q2 earnings timeframe, it’s likely Under Armour’s stock, along with the broader market, is going to see a continued drop when results confirm the palpable reality.

But Under Armour Stock Witnessed Something Similar During The 2008 Downturn

• We see Under Armour stock declined from levels of around $8 in October 2007 (the pre-crisis peak) to levels of around $2 in March 2009 (as the markets bottomed out)- implying the company’s stock lost as much as 76% from its approximate pre-crisis peak. This marked a steeper drop than the broader S&P, which fell by about 51%.
• However, Under Armour recovered strongly post the 2008 crisis to about $3.41 in early 2010 – rising by 89% between March 2009 and January 2010. In comparison, the S&P bounced back by about 48% over the same period.

Will Under Armour’s Stock Recover Similarly From The Current Crisis?

Keeping in mind the fact that Under Armour stock fell 51% from the market peak on February 19 to the low on March 23 compared to the 76% decline during the 2008 recession, we believe it can potentially recover by 30% to levels of $12 once economic conditions begin to show signs of improving. This marks a partial recovery to the $17 level Under Armour stock was at before the coronavirus outbreak gained global momentum.

That said, the actual recovery and its timing hinge on the broader containment of the coronavirus spread. Our dashboard forecasting US COVID-19 cases with cross-country comparisons analyzes expected recovery time-frames and possible spread of the virus.

Further, our dashboard -28% Coronavirus crash vs 4 Historic crashes builds a more complete macro picture and complements our analyses of Coronavirus impact on a diverse set of Ralph Lauren’s multinational peers – from Coronavirus and GES to impact on competitor L Brands and Coronavirus on URBN stock. The complete set of coronavirus impact and timing analyses is available here.

While things are bad for companies across the apparel industry, the ongoing crisis has raised questions about the very survival of some companies due to their precarious financial position. We find out whether Gap Can Survive The COVID-19 Recession in a separate analysis.

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