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In today's Oxen Group recap, we will be looking at Under Armour (NYSE:UA) after the company's latest earnings. The Oxen Group covers Under Armour year round, and we want to update our current pricing to reflect these earnings. Additionally, we cover our typical market overview, important news, and give our perspective on what's moving the market.

Today's Overview

The markets pushed higher again today after some lackluster data from retail sales and consumer confidence set the stage for a no QE taper from the Fed tomorrow. Further, earnings were solid enough from Apple (NASDAQ:AAPL) to help push the market higher. Despite early weakness, we also saw rises in Pfizer (NYSE:PFE) and 3D Systems (NYSE:DDD) despite early losses. Further, an IBM (NYSE:IBM) buyback plan was also helping the markets. More of what moved the markets after we cover our daily deeper look - Under Armour.

Deeper Look

Under Armour

The latest earnings report from Under Armour was another solid one that displayed the continued strength of the growth that the company is undergoing right now. With the latest earnings, we have jumped our price target now to $92. We still do think that shares have some slight upside from here, and our earlier analysis did a poor job at accounting for the long-term growth of the company. At this time, we see about 15% growth over the next six months.

Let's break down the earnings report. The company noted 27% growth in profits, but they did note that operating income growth for 2014 would likely be on the lower end of their annual 20-25% growth:

We anticipate 2014 net revenues and operating income to be at the lower end of our long-term growth targets of 20% to 25%. I would emphasize that our focus remain to drive higher operating income dollar growth, balanced with making the right investments to drive our long term global success.

Some of the biggest highlights of the report were that the company was able to see its Apparel command a 5% higher price during the quarter. The company being able to see a continued expansion of their ASP will allow them to command higher margins moving forward. The company, additionally, noted that they saw strong growth in their running, hunting, and mountain categories. One of the best reasons to like Under Armour is that the company is now so much more than they used to be with just training. They are even trying to break the mold and enter into the women's market with Women's Studio. We believe that this side of the business is one of the biggest reasons to like UA.

The company had a lot to say about this division in the latest quarter. Some of the highlights for UA were that the company believes that Women's has the chance to be larger than Men's. In eight years, Women's has gone from 18% of the total apparel business to 30%. The company expects it to be a $1B business by 2016, and in our price target model, we feel comfortable leaving growth levels at 20% in 2016 as women's continues to grow. The company, currently, only makes about $500M from women's, so we are talking about a potential 100% increase in the next three years. With revenue, likely to come in at $2.27B right now, we can see $175M added to that in 2014, 2015, and 2016 alone.

Another major area of growth for UA is going to be the company's footwear division:

We've delivered a 44% CAGR in footwear since 2006. But again, that just feels like the tip of the iceberg for what the brand should look like. We'll deliver that growth and it will come by being great within every category where we compete. And I can promise you, we expect to compete in every category. Growth that will be driven by being an authentic performance brand and how we take that brand equity to a broader range of consumers over time. That means taking it to consumers outside of our home country and that means truly becoming global.

The company, further, noted in the latest report that they believe 2014 will see accelerated growth, which could mean 50% upside. 2013 revenues are likely to be around $330M, adding over $100M in revenue. Just from footwear and women's we are talking more than $275M in new revenue. International is about to explode as well, and many others. The company is easily going to see 20-25% operating income growth in 2014 and 2015. In our model, we have taken expectations down in 2016 and 2017, as it is hard to predict those rates. With that type of expansion, we foresee $92 over the next several months.

Step 1.

Project operating income, taxes, depreciation, capex, and working capital for five years. Calculate cash flow available by taking operating income - taxes + depreciation - capital expenditures - working capital.

2013 Projections

2014 Projections

2015 Projections

2016 Projections

2017 Projections

Operating Income


















Capital Expendit.






Working Capital






Available Cash Flow






Step 2.

Calculate present value of available cash flow (PV factor of WACC * available cash flow). You can calculate WACC, but we have given this number to you. The PV factor of WACC is calculated by taking 1 / [(1 + WACC)^# of FY years away from current]. For example, 2016 would be 1 / [(1 + WACC)^4 (2016-2012). WACC for UA: 7.88%






PV Factor of WACC






PV of Available Cash Flow






Step 3.

For the fifth year, we calculate a residual calculation. Taking the fifth year available cash flow and dividing by the cap rate, which is calculated by WACC subtracting out residual growth rate, calculate this number. Companies with high levels of growth have higher residual growth, while companies with lower growth levels have lower residual growth. Cap Rate for UA: 1.9%


Available Cash Flow


Divided by Cap Rate


Residual Value


Multiply by 20167PV Factor


PV of Residual Value


Step 4.

Calculate Equity Value - add PV of residual value, available cash flow PVs, current cash, and subtract debt:

Sum of Available Cash Flows


PV of Residual Value


Cash/Cash Equivalents


Interest Bearing Debt


Equity Value


Step 5.

Divide equity value by shares outstanding:

Equity Value


Shares Outstanding


Price Target


Chart Overview

The S&P 500 (NYSEARCA:SPY) rebounded off support at 1650, and it has now broken all resistance. The index looks quite strong, and the index is now peaking over the upward channel resistance. With that level broken, bulls are in complete control.

(click to enlarge)

The Dow (NYSEARCA:DIA) is bouncing back but still remains the laggard. The index has had trouble getting going over 15400, but since, it is on fire. It is now about to hit previous resistance at 15700, leaving it up to the Fed to push us up and over.

(click to enlarge)

Economic Data


Data Report

Market Expectations


October 29

Retail Sales - September



October 29

PPI - September



October 29

Case-Shiller 20-city Index



October 29

Consumer Confidence - October



October 30

ADP Employment Change - October



October 30

CPI - September



We got some solid news from PPI, which show producer prices are declining. That news is good because it means inflation is still not present, and that will allow the Fed to QE some more. Further, the Consumer Confidence dropped to 71.2. Yet, the market has shrugged this off because at the end of the day it was during the government shutdown, so it should be lower. The market will shrug off bad data and continue higher until we start to get to November.

Tomorrow, we get ADP in the morning, which could set the stage for a double whammy higher as it will likely be weak and that will lead to the Fed saying no taper.

Foreign Markets

Asia - Asian markets were mixed with Hong Kong up and Shanghai slightly down. Australia and Japan, though, were feeling more pressure. The markets were mostly quiet but Japan dropped surprisingly on a solid Retail Trade data for September that beat as well as Household Spending numbers. Potentially, the numbers were priced in on Monday. Australia dipped after their Reserve Bank Governor Glenn Stevens said that the currency and market strength did not mirror the country's fundamentals. Earnings season rolled on with mixed reports across the region.

Europe - European stocks were up across the board after a strong report from BP as the oil giant increased its dividend and Q3 earnings fell less than expected. UBS, however, slid amongst news that it was not the target of a probe from foreign countries despite the company launching its own internal probe into FX manipulation. Deutsche Bank was also weak, shedding 94% in profits to put aside money for legal disputes. Italian markets were leading the way up almost 2% as bond yields continue to drop and the Milan bourse has been lower.

Fed Outlook

The Fed began its two-day FOMC to determine if they will begin taper or not. There is little expectation that they will despite some members believing that they should. Employment data is not good enough and the government crushed the economy for a couple weeks, mandating more QE. Though, the likely results are more market upside and little continued impact on the economy.

Source: Under Armour Still Has Upside, Markets Move Higher On More QE Love