Under Armour, Inc. (NYSE: UA) shares are falling after the company reported a first-quarter profit of $2.9 million, or 6 cents per share, beating analyst forecasts of 3 cents per share. However, the company also lowered its 2008 profit forecast to between $103.5 million to $104.5 million, from a previous estimate of $108.5 million to $110.5 million, which is giving investors reasons to worry. If you think this stock won't be rising too far in the coming months, then it could be a good time to look at a bearish hedged play on UA.
After hitting a one-year high of $73.40 in August, the stock hit a one-year low of $25.32 in January. This morning, UA opened at $34.54. So far today the stock has hit a low of $33.80 and a high of $36.87. As of 11:55, UA is trading at $34.89, down $3.69 (-9.6%). The chart for UA looks neutral and deteriorating, while S&P gives the stock its highest 5 STARS (out of 5) strong buy rating.
For a bearish hedged play on this stock, I would consider a June bear-call credit spread above the $45 range. A bear-call credit spread is an options position that combines the purchase and sale of call options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make a 4.2% return in seven weeks as long as UA is below $45 at June expiration. Under Armour would have to rise by more than 29% before we would start to lose money. Learn more about this type of trade here.
"VMware is a market leader in software virtualization. Companies typically do not use the full computing power of their servers, and when not in use, that server sits idle.
"Virtualization technology allows IT managers to use that underutilized capacity -- running software across the organization's entire base of servers. Thus, virtualization is a key cost-cutting technology.
"VMware has a short interest ratio of 11.7 and a freely traded float of just 50 million shares. If all those shorts try to cover, the stock looks likely to be in short supply. Meanwhile, trading at 36 times 2009 earnings estimates with a long-term growth rate of 45%, VMW doesn't look overpriced.
"Under Armour (NYSE: UA) makes clothing (along with sports equipment) targeting the athletic and outdoor-oriented market. Specifically, the company makes clothes designed to wick moisture away from the skin and keep the wearer at a comfortable temperature, regardless of weather conditions.
"Meanwhile, the stock has seen strong earnings growth despite the slowdown in consumer spending -- earnings surged 42% in the fourth quarter. And management recently announced its looking for revenues to reach $765-775 million in 2008, representing around a 27% increase over 2007 levels.
"With a forward P/E of 23 and a long-term growth rate of 25%, UA looks inexpensive. With a float of less than 32 million shares and a short interest ratio approaching 12, Under Armour looks like a prime short-squeeze candidate."
Each day, Steven Halpern's TheStockAdvisors.com offers the latest market commentary and favorite investment ideas from the nation's leading financial newsletter advisors.
Under Armour (NYSE: UA) shareholders may want to worry. Nike (NYSE: NKE) announced on Monday that it is launching Nike Sparq Training, which will combine "high performance products, online experiences at nike.com, a new association with Velocity Sports Performance Centers, and a multi-media campaign called 'My Better.'"
The product line will include footwear, apparel and equipment in partnership with Sparq Training.
This appears to be Nike's strongest attack on Under Armour's center of strength to date. And here's the problem: With a strong brand and financial resources that dwarf Under Armour's, Nike would appear to have a very good shot at crushing Under Armour's market share.
In a battle for market share, Nike can outspend Under Armour on advertising and sustain losses if necessary. As an aside, in my recent visits to discount stores like Marshalls and TJMaxx, I have found large quantities of Under Armour merchandise.
Under Armour has been a strong performer because of a first mover advantage, but as Charlie Munger once said, very few businesses have a future as good as their past. Under Armour's past success has attracted a deep-pocketed competitor, and that could hobble its future.
MOST NOTEWORTHY: K-12 Inc., ChinaEdu and Cardtronics were today's noteworthy initiations:
Baird is positive on K-12 Inc. (NYSE: LRN)'s leadership position and growing market opportunity for expansion. The firm started shares with an Outperform rating and $26 target. Shares were also initiated at Morgan Stanley with an Equal Weight rating and at Credit Suisse with an Outperform rating.
Bear initiated ChinaEdu (NASDAQ: CEDU) with an Outperform rating and $11.20 target and said demand for post-secondary education in is outstripping the capacity of land based universities and that CEDU will benefit from the governments strategy to raise education levels. Piper, which started shares with a Buy rating and $10 target, believes the online higher education market is still in the relatively early stages as online student enrollments represent less than one-fourth of total university enrollments.
William Blair believes Cardtronics (NASDAQ: CATM) has a highly attractive opportunity to increase the number of ATM sites it operates. The firm assumed coverage with an Outperform rating.
Other initiataions:
MedAssets (NASDAQ: MDAS) was initiated with an Overweight rating and $24 target at Lehman, at Deutsche Bank with a Buy rating and $25 target and at Wachovia with a Market Perform rating.
Jefferies initiated VanceInfo (NYSE: VIT) with a Buy rating and $11 target.
Susquehanna initiated Under Armour (NYSE: UA) with a Neutral rating.
Under Armour (NYSE: UA) is recently trading at $29.90 in pre-open trading, below its close of $37.06.
UA anticipates full year 2007 net revenues to increase approximately 40% to an estimated $605 million.
Stephens Inc says: "Despite UA's pre-announced out-performance in 4Q07, the now anticipated weight of the 1H08 marketing spend to launch the new UA footwear line is obviously putting additional discount on the stock."
UA February option implied volatility of 100 is above its 26-week average of 55 according to Track Data, suggesting larger price risks.
Options Update is provided by Stock Specialist Paul Foster of theflyonthewall.com
Under Armour, Inc. (NYSE: UA) has been falling for the past week after disclosures of insider trading. Chairman and CEO Kevin Plan sold 1.5 million shares last week for almost $90 million. Two of Under Armour's senior vice presidents, Kip Fulks and Scott Plank, also sold 15,000 shares and 850,000 shares respectively last week. Total insider sales over the past month have reached $130.6 M. The insider sell-off causes concern for shareholders despite UA's positive earnings report last month. If you think this stock won't be rising too far in the coming months, then it could be a good time to look at a bearish hedged play on UA.
After hitting a one-year high of $73.40 in August, the stock has declined over the past three months. This morning, UA opened at $48.20. So far today the stock has hit a low of $45.00 and a high of $48.20. As of 11:15, UA is trading at $46.78, down $1.82 (-3.7%). The chart for UA looks are bearish and steady, while S&P gives the stock a positive 4 STARS (out of 5) buy rating.
For a bearish hedged play on this stock, I would consider a January bear-call credit spread above the $65 range. A bear-call credit spread is an options position that combines the purchase and sale of call options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. This particular trade will make a 4.2% return in less than 3 months as long as UA is below $65 at January expiration. Under Armour would have to rise by more than 49% before we would start to lose money.
UA has never been above $65 for more than a few days at a time and has shown resistance around $60 recently. This trade could be risky if the holiday season turns out to be a big one for retail, but that looks to be an overly optimistic view at this point. Plus, this position could be protected by strong resistance UA has formed around $64, where the stock topped in late October.
Brent Archer is an options analyst and writer at Investors Observer. At publication time, Brent neither owns nor controls positions in UA.
MOST NOTEWORTHY: FreeSeas, Nektar, Altus Pharmaceuticals and AbitibiBowater were today's noteworthy initiations:
Cantor initiated shares of FreeSeas (NASDAQ: FREE) with a Buy rating and $10 target, as they expect the company to benefit from the continued strength in the dry bulk market.
JP Morgan resumed coverage of Nektar (NASDAQ: NKTR) with an Overweight rating, as they view weakness from the discontinuation of Exubera as a buying opportunity given the company's base royalty business and pipeline opportunities.
Altus Pharmaceuticals (NASDAQ: ALTU) was initiated with a Buy rating and $19 target at Jefferies. The firm expects news flow from the company's two lead products over the next 6-12 months that should act as catalysts.
AbitibiBowater (NYSE: ABH) was initiated with a Sell rating and $18 target at Banc of America, as they are cautious on newsprint trends; the firm recommends reducing existing positions.
OTHER INITIATIONS:
Caris initiated Collective Brands (NYSE: PSS) with an Average rating and $18 target and Under Armour (NYSE: UA) with an Above Average rating.
Stifel started shares of Patriot Coal (NYSE: PCX) with a Hold rating.
PetroChina (NYSE: PTR) was initiated with a Sell rating at Goldman.
Beazer Homes (NYSE: BZH), a single-family homebuilder based in Atlanta, will record a pretax charge of $230 million in the fourth quarter and suspend its quarterly dividend to reduce costs. BZH December option implied volatility of 98 is above its 26-week average of 86 according to Track Data, suggesting larger risks.
Under Armour (NYSE: UA) Chairman and Chief Executive Kevin Plank on Nov. 5 reported selling $76 million in company shares. Plank continues to own 12.5 million of class b shares. Dow Jones reported of two other executives selling shares, Senior Vice President Scott Plank selling $45 million and Senior VP Kip Fulks selling $8.8 million. UA has a market cap of $2.4 billion. UA November option implied volatility is at 65, December is at 54, above its 26-week average of 48 according to Track Data, suggesting larger price risks.
Daily options Update is provided by Stock Specialist Paul Foster of theflyonthewall.com.
MOST NOTEWORTHY: GPC Biotech, Akamai, Qwest, Shutterfly and LDK Solar were today's noteworthy downgrades:
GPC Biotech (NASDAQ: GPCB) was downgraded to Sell from Neutral at Goldman, to Sell from Hold at Deutsche Bank and to Underweight from Overweight at Lehman after the company's phase III trial of satraplatin to treat prostate cancer did not meet its primary endpoint.
Deutsche Bank downgraded shares of Akamai Technologies (NASDAQ: AKAM) to Hold from Buy on valuation following the recent rally as they believe concerns around slowing growth, margins and capital efficiency will limit upside.
Qwest Communications (NYSE: Q) was downgraded to Sector Performer from Outperformer at CIBC and to Neutral from Overweight at JP Morgan following the company's disappointing Q3 results.
Jefferies downgraded shares of Shutterfly (NASDAQ: SFLY) following the better-than-expected Q3 results due to valuation.
Piper downgraded shares of LDK Solar (NYSE: LDK) to Market Perform from Outperform, as they expect higher blended poly cost for the company due to tightening scrap poly supply and increased competition.
OTHER DOWNGRADES:
Maxwell Technologies (NASDAQ: MXWL) was downgraded to Underperform from Market Perform at JMP Securities.
UBS downgraded Estee Lauder (NYSE: EL) to Sell from Neutral.
Merrill downgraded CommScope (NYSE: CTV) to Neutral from Buy.
Under Armour (NYSE: UA) was downgraded to Underperform from Market Perform at Raymond James.
RBC Capital downgraded Beckman Coulter (NYSE: BEC) to Sector Perform from Outperform.
Under Armour (NYSE: UA) is seeing shares trade down after earnings this morning. It wasn't the actual EPS number, but the revenues.
The sportswear maker posted EPS of $0.40 and revenues of $186.9 million; First Call estimates were $0.34 EPS on $190.95 million revenues. Under Armour now expects revenue between $590 million and $600 million for 2007, compared with an earlier expectation for between $580 million and $590 million and consensus is already $596 million.
Gross margin for the third quarter of 2007 remained steady at 50.6% compared to 50.6% in the prior year. Another set of issues here were a doubling of inventories to $151.8 million with a simultaneous marketing boost to 12 to 13 percent instead of a prior 10 to 12 percent of revenue forecast. Higher marketing costs may pay off, but the higher inventories are rarely a welcome wagon for investors in high growth apparel trend stocks.
We did get some preliminary 2008 targets today. Under Armour said 2008 revenue and income from operations will come in ahead of prior goals of reaching long-term growth of between 20 to 25 percent.
With earnings due out tomorrow, only those comfortable with potential near-term volatility should consider Mark Fightmaster's recommendation for Under Armour (NYSE: UA). Nevertheless, the analyst with Schaeffer's Investment Research says, "I am a raging bull when it comes to this athletic apparel firm."
He explains, "Under Armour has a lot going for it. UA darn near has the market cornered when it comes to performance apparel. Its marketing is aggressive and catchy, and it was the innovator, not the imitator."
"Walk into your local sporting goods store or look at UA's internet site," he notes, and "check out the ducats you need to shell out for one of the company's shirts."
The advisor continues, "Okay, now let's take a look at UA's technical merits and see if my bullish enthusiasm is warranted. The shares are positioned above potential support at their 50-week moving average. Since its inception, UA has finished just one week below this trendline, which is rapidly ascending into the technical picture to provide support."
MOST NOTEWORTHY: NutriSystem, Under Armour, CME Group, Air France ADS and Kilroy Realty were today's noteworthy upgrades:
NutriSystem (NASDAQ: NTRI) was upgraded to Strong Buy from Buy at Broadpoint on valuation, as they believe all concerns are overdone.
Think Equities upgraded Under Armour (NYSE: UA) to Buy from Accumulate on valuation.
Wachovia upgraded CME Group (NYSE: CME) to Overweight from Market weight, as they expect fed income volumes to benefit from a more active Federal Reserve.
Goldman added Air France (NYSE: AKH) to its Pan-European Conviction Buy List citing valuation following the recent sell-off.
Citigroup upgraded shares of Kilroy Realty (NYSE: KRC) to Buy from Hold on valuation, as they believe concerns are overblown and the company's underleveraged balance sheet can drive growth.
MOST NOTEWORTHY: Sprint Nextel, Tesoro, VeriSign, Healthcare Property and Resources Connection were today's noteworthy downgrades:
Goldman downgraded shares of Sprint Nextel Corporation (NYSE: S) to Neutral from Buy to reflect continuing turnaround delays, macro headwinds and competition.
Tesoro Corporation (NYSE: TSO) was downgraded to Neutral from Outperform at Credit Suisse, citing increased concerns regarding West Coast margins.
The firm also lowered VeriSign Inc (NASDAQ: VRSN) to Neutral from Outperform, as they believe the company's reorganization could require more time than investors anticipate.
Friedman Billings downgraded Healthcare Property (NYSE: HCP) to Market Perform from Outperform on valuation. Shares were also downgraded to Neutral from Buy at UBS.
Resources Connection (NASDAQ: RECN) was downgraded to Hold from Buy at Stifel, to Market Perform from Outperform at JMP Securities and to Peer Perform from Outperform at Bear following its Q1 report.
OTHER DOWNGRADES:
Walgreen (NYSE: WAG) was downgraded to Neutral from Overweight at JMP Securities.
JP Morgan downgraded Staples Inc (NASDAQ: SPLS) to Underweight from Neutral.
Our "Duh of the Week" award goes to the web site Hot or Not, which discontinued its free dating service when it was overrun by spam and fake profiles. Apparently, they thought the idea that people would present themselves honestly on the internet was hot. It was not. via Mashable
Under Armour (NYSE: UA) and Warnaco Group's (NASDAQ: WRNC) Speedo received some free publicity that will test the axiom that there is no such thing as bad publicity when it was revealed that a couple of detainees at the government's Club for Terrorists in Guantanamo were discovered to be wearing Under Armor briefs and/or Speedo bathing suits. Officials at Gitmo, according to a letter leaked to Boing Boing, are investigating the prisoner's attorneys/ fashion consultants as possible culprits. via Boing Boing
The Omachi Digger Wasp Lovers Group has convinced a local company to market a rice cracker using their favorite insect as the main ingredient. But is it trans-fat free?
Apparently, the all-night net cafes in Tokyo have become favorite overnight haunts for an estimated 5,400 homeless web junkies.
The first McDonald's (NYSE: MCD) McCafe to open in Toyko had a line of over 1,000 waiting to get in.
Finally, remembering that there are companies in the business of finding good names for companies and products, I have to take my hat off to the geniuses that named the Stiff Nipples Air Conditioning Service.
Fitness apparel maker Under Armour Inc (NYSE: UA) has had an amazing run so far, but the question now being asked is whether or not that run is over -- and it looks like 37% of investors believe it just might be.
Here's a quick history lesson on Under Armour. The stock went public in November of 2005 and traded at about $25. Since then the stock has steadily climbed to its current price of $64.38, or a gain of about 155%. Wow.
However, Under Armour is now at a point where investors are having a tough time believing this bullish run will continue. The Baltimore Sun highlighted the dilemma in this morning's paper, pointing out that 37% of UA's stock is owned by short sellers -- good enough to make Under Armour the 25th largest short sold company on the New York Stock Exchange.
The 37% of doubters seem to have an awfully good point here, at least at this price point (I'd hate to think of the price points that some of them got in at). Retailers reported disappointing sales for the month of July, another sign of the weakening consumer and overall economy, amid the market's current volatility. It's just not advisable to be long a stock like Under Armour right now, not with such a large red flag being raised.
Under Armour, Inc. (NYSE: UA) shares are falling after the company reported a first-quarter profit of $2.9 million, or 6 cents per share, beating analyst forecasts of 3 cents per share. However, the company also lowered its 2008 profit forecast to between $103.5 million to $104.5 million, from a previous estimate of $108.5 million to $110.5 million, which is giving investors reasons to worry. If you think this stock won't be rising too far in the coming months, then it could be a good time to look at a bearish hedged play on UA.
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Beazer Homes
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