Under Armour plunges after tempering growth expectations

Shares of Under Armour (UA) are sliding after the company reported better than expected third quarter results, but tempered its growth expectations for the next few fiscal years. Analysts at William Blair and Stifel have downgraded Under Armour to Neutral-equivalent ratings this morning following the company's the earnings report and associated call with analysts and investors. RESULTS: Under Armour reported third quarter earnings per share of 29c and revenue of $1.47B, above consensus of 25c and $1.45B, respectively. Under Armour said it continues to expect 2016 net revenues of approximately $4.925B, representing growth of 24% over 2015, and 2016 operating income of $440M to $445M, representing growth of 8% to 9% over 2015. During its earnings call, the company reiterated its goal of achieving $7.5B of revenues by 2018, but said its earnings growth will be in the mid-teens for 2017 and 2018. Under Armour added that its "challenge is to continue to invest in several fronts and markets," which it noted will impact its "path to growth in the near term." ANALYSTS MOVE TO THE SIDELINES: Following the company earnings announcement, William Blair's Sharon Zackfia downgraded Under Armour to Market Perform, saying that investments will constrain earnings growth to the mid-teens through 2018, down materially from the company's last analyst day goal of 23%. The analyst cited Under Armour's plans to invest heavily in footwear, direct-to-consumer, and international markets. Nonetheless, the analyst continues to believe the company's long-term prospects are "stellar." Stifel analyst Jim Duffy also downgraded the stock to Hold from Buy, noting a sharp reduction to 2018 EBIT targets associated with a drag on gross margin and heightened investment. In a note of his own, the analyst told investors that he has a more conservative view on both earnings power and the forward multiple, given the slowing earnings growth. He also lowered his price target on the shares to $33 from $53. Jefferies was also bearish on Under Armour after earnings, with analyst Randal Konik lowering his price target on the shares to $34 from $42 and reiterating a Hold rating on the stock. Promotions are rising, which suggests sell-through is slowing, and the stock's valuation is still the highest among peers, Konik told investors. The analyst also noted that he sees "mounting" evidence that the athletic apparel cycle is declining as denim rises. PIPER REMAINS A BUYER: In a post-earnings note to investors, Piper Jaffray analyst Erinn Murphy told investors that she views this morning's selloff in the company's shares as overdone. While the analyst acknowledged that operating income growth - now seen to grow in the mid-teens for 2017 and 2018 - is "clearly below expectations," she would still be a buyer of the shares on the pullback. In a previous note, Murphy had reiterated her Overweight rating on the shares after the company's third quarter sales and earnings beat expectations, noting the company's "solid" footwear and international growth. PRICE ACTION: In morning trading, shares of Under Armour have dropped about 14% to $32.58. Year-to-date the stock has now declined by nearly 60%. WHAT'S NOTABLE: Nike (NKE), Under Armour's largest, and much larger, competitor, is also down about 2% in early trading. Last night, Oppenheimer analyst Anna Andreeva initiated Nike with a Perform rating, saying that the company's dominant market share globally could be at risk as trends change away from its "bread and butter" of performance and marketplace becomes more fragmented.