Sell Under Armour on 'reputational damage' from CEO's Trump comments, analyst says

Kevin Plank, CEO of Under Armour.
Adam Jeffery | CNBC

Susquehanna lowered its rating for Under Armour shares to negative from neutral, saying the company's CEO recent comments on President Donald Trump will hurt its financial results.

"To have a pro-business president is something that is a real asset for the country," Under Armour CEO Kevin Plank told CNBC on Feb. 7 interview.

Steph Curry, the NBA superstar who is the face of Under Armour basketball, quickly used Plank's comments to criticize Trump, saying, "I agree with that description if you remove the 'et,'" from asset.

"Regardless of CEO Plank's political views or whether his comment was meant to be a Trump endorsement or a general opinion, we believe the decision to express a view in today's highly charged political climate was a mistake. In this case, perception is reality," analyst Sam Poser wrote in a note to clients Wednesday. The "polarized political climate and the pointed response by Stephen Curry make it nearly impossible to effectively build a cool urban lifestyle brand in the foreseeable future."

Poser lowered his Under Armour price target to $14 from $24, representing 36 percent downside from Tuesday's close.

The analyst cited what happened to Lululemon in 2013 when its founder Chip Wilson made "insensitive comments about women's bodies." The company's same-store sales worsened to 3.8 percent growth in fiscal year 2013 from 16 percent growth the previous year.

"Similar to UAA, LULU had already been suffering from operational issues before Mr. Wilson's comments, but the subsequent reputational damage made the LULU's overall problems significantly worse," he wrote.

"The point is that reputational damage to Under Armour appears to be done, and such damage may have lasting effects on brand perception and, ultimately, sales in our view," he added.

Under Armour shares are down 25 percent year to date through Tuesday, with most of the decline occurring after the company gave weaker-than-expected 2017 sales guidance on its Jan. 31 fourth-quarter earnings report.

Contrary to Susquehanna's report, Morgan Stanley upgraded Under Armour shares Tuesday to equal-weight saying "the stock can hold its current level."

And billionaire buy-and-hold investor Ron Baron told CNBC on Wednesday he thinks Plank can turn things around.

— CNBC's Michael Bloom contributed to this story.