Here's Why A Great Report Is Expected From Under Armour

Apr.23.14 | About: Under Armour, (UA)

Under Armour Inc. (NYSE:UA) is set to report FQ1 2014 earnings after the market closes on Thursday, April 24th. Under Armour is a high performance athletic wear manufacturer. The company’s stock has been on fire lately, but like many other growth stocks, it has sold off over 13% since mid-March. This quarter, Wall Street is expecting Under Armour to report flat earnings compared to FQ1 of last year and a 26.5% gain in year over year revenue. In March, competitor Nike (NYSE:NKE) blew earnings estimates out of the water, and investors are expecting a great report from Under Armour, too.

The information below is derived from data submitted to the Estimize.com platform by a set of Buy Side and Independent analyst contributors.

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(Click Above to see Estimates and Interactive Features for Under Armour)

The current Wall Street consensus expectation is for Under Armour to report 4c EPS and $597.11M revenue, while the current Estimize.com consensus from 28 Buy Side and Independent contributing analysts is 7c EPS and $608.25M in revenue. This quarter, the buy-side as represented by the Estimize.com community is expecting Under Armour to beat the Wall Street consensus on both EPS and revenue by a considerable margin.

Over the previous 6 quarters, the consensus from Estimize.com has been more accurate than Wall Street in forecasting Under Armour’s EPS every time, and has been more accurate in predicting revenue 5 times. By tapping into a wider range of contributors, including hedge-fund analysts, asset managers, independent research shops, students, and non-professional investors, Estimize has created a data set that is more accurate than Wall Street up to 69.5% of the time; but more importantly, it does a better job of representing the market’s actual expectations. It has been confirmed by Deutsche Bank (NYSE:DB) Quant. Research and an independent academic study from Rice University that stock prices tend to react with a more strongly associated degree to the expectation benchmark from Estimize than from the Wall Street consensus.

The magnitude of the difference between the Wall Street and Estimize consensus numbers often identifies opportunities to take advantage of expectations that may not have been priced into the market. In this case, we are seeing a larger than usual differential between the two groups’ expectations.

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The distribution of estimates published by analysts on the Estimize.com platform range from 5c to 9c EPS and from $588.34M to $644.00M in revenues. This quarter, we’re seeing an average sized distribution of EPS estimates on Under Armour and a wider than usual distribution of revenue estimates.

The size of the distribution of estimates relative to previous quarters often signals whether or not the market is confident that it has priced in the expected earnings already. A wider distribution of estimates signals less agreement in the market, which could mean greater volatility post-earnings.

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Over the past 4 months, the Wall Street EPS forecast fell from 6c to 4c, while the Estimize consensus crept up from 6c to 7c. Meanwhile, the Wall Street revenue consensus was revised up from $580.75M to $597.11M, while the Estimize consensus gradually rose from $592.81M to $608.25M. Timeliness is correlated with accuracy, and upward analyst revisions going into an earnings report are often a bullish indicator.

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The analyst with the highest estimate confidence rating this quarter is sana5000, who projects 5c EPS and $599.11M in revenue. Sana5000 is ranked 57th overall among 4,200 contributing analysts. Over the past 2 years, sana5000 has been more accurate than Wall Street in forecasting EPS and revenue 57% and 44% of the time, respectively, throughout 169 estimates. Estimate confidence ratings are calculated through algorithms developed by deep quantitative research, which looks at correlations between analyst track records and tendencies as they relate to future accuracy. In this case, sana5000 is expecting Under Armour to beat the Wall Street consensus on EPS and revenue, but fail to live up to the Estimize.com community’s expectations.

Despite the sell-off and earnings multiple trimming that Under Armour has suffered through lately, in early April, Sterne Agee upgraded UA on the merits of its strong recent performance and potential for continued expansion in footwear and international markets. The Estimize community is looking for another good quarter of growth from Under Armour, and expects year over year gains of 3c per share in earnings and 29% in revenue on Thursday.

Disclosure: None