Retail
Are Under Armour and Nike Both Overvalued in a Field of Competition?
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Each daily wave of analyst upgrades, downgrades and initiations brings multiple sector calls. Some calls are mere updates, but in others analyst calls have important information that should be the basis for more in-depth research by investors. That was the case for a Wells Fargo call for Nike Inc. (NYSE: NKE) and Under Armour Inc. (NYSE: UA).
The Wells Fargo team of Tom Nikic and Ike Boruchow rated both sporting apparel players only with Market Perform ratings after a change in coverage. The brands are both loved, but valuation and competition in a crowded field may play a much larger role in the months and years ahead.
Wells Fargo sees Nike as one of the strongest consumer brands in the world. It sees continued opportunities for sales growth and margin expansion as well, but it sees “catalyst noise” on the horizon via the Summer Olympics, followed by stiffer competition from Adidas and Under Armour, and it worries that a premium price-to-earnings (P/E) multiple could make for a range-bound stock.
When investors hear that a stock is fully valued, many of those investors interpret that as the shares are now overvalued. That is at least how they treat the term on growth stocks, and Nike and Under Armour have both been incredible growth stories.
Nike was resumed with a Market Perform rating and a valuation range of $58 to $62 in the call. Pros here are constant innovation and having one of the clearest paths to long-term margin expansion.
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