Canaccord Genuity and other brokerage firms have been publishing their best ideas lists in 2012 for equity investors. The picks from consumer analyst Camilo Lyon show that the top picks for 2012 are Under Armour, Inc. (NYSE: UA) and Foot Locker, Inc. (NYSE: FL).
For Under Armour, the pick is Visible outlet square footage growth, as well as new line extensions, and even its move away from sweat repellent form-fitting materials into the cotton-based market. The firm expects over 25% top-line growth as a result.
For Foot Locker, the firm does not expect a deceleration in the athletic footwear cycle that has been driving solid comp growth in running and basketball. The firm is also looking at the company’s opportunity to improve its margin structure through changes to its apparel business that are less top-line dependent.
Both companies have some overlaps in the customer bases. Canaccord Genuity sees several trends to watch during 2012:
- The firm expects broader price increases during 2012 as many companies are planning to pass on higher costs with some seeing no pushback and others being forced to mark down price.
- The athletic cycle is expected to continue in 2012 with footwear trends in running and in basketball. The new lightweight shoes for running, based on past new product cycles, could persist for three to five years and the current cycle is robust. This is also believed to be a secular trend towards a more active and athletic lifestyle.
- Tier 1 brands should dominate with brands having better pricing power than Tier-2 and Tier-3 retail stories.
What is interesting is that the report starts out, “Heading into 2012, we are not assuming a significant improvement to the consumer spending environment, which will likely continue to be pressured by high unemployment and low wage growth. In addition, price increases from both apparel and footwear manufacturers will begin to flow through…”
As far as the targets…. The most recent Under Armour price target is $102.00 versus a Thomson Reuters consensus price target objective of $82.00 and versus a $73.00 price target today. Canaccord Genuity is the ‘Street High’ price target objective in Under Armour. The most recent Foot Locker price target is $30.00 versus a Thomson Reuters consensus price target objective of $27.00 and versus a $23.67 price target today. The ‘Street High’ price target is $34.00.
JON C. OGG