The shares of Under Armour (UA) are climbing after Wells Fargo upgraded the stock to Outperform from Market Perform,saying that the company should benefit from its recent deal with Kohl's (KSS) and diminishing impact from The Sports Authority's liquidation.

KOHL'S DEAL: After Under Armour made a deal with Kohl's in July, the sportswear maker's products should begin shipping to 600 Kohl's stores "shortly," according to Wells Fargo analyst Tom Nikic. In the second and third quarters of next year, United Armour's products will be shipped to another 600 Kohl's stores, he reported.

IMPACT OF THE SPORTS AUTHORITY TO EASE: The negative impact of The Sports Authority's liquidation on Under Armour should peak in Q3, Nikic wrote. That's partly because, due to seasonal factors, Under Armour generated the largest revenue from The Sports Authority in Q3, while Under Armour can probably sell products that were destined for The Sports Authority to off-price retailers, the analyst stated. In early 2017, Under Armour's headwind from The Sports Authority should end completely, Nikic believes.

INVENTORY LEVELS IMPROVING: Investors had been worried about elevated inventory levels at Under Armour and at its largest customer, Dick's Sporting (DKS), according to Nikic. Last quarter, both companies' inventory growth slowed, the analyst noted. Moreover, Dick's "lean" inventory indicates that consumer demand for Under Armour's products was "strong," the analyst stated.

GROWTH OUTLOOK, PRICE TARGET: Noting that Nike's (NKE) sales are still seven times larger than those of Under Armour, Nikic wrote that Under Armour has "noteworthy opportunities to narrow the gap" by growing its overseas and footwear/sportswear businesses. Additionally, Under Armour can improve its margins and "below the line items," Nikic believes. He raised his price target range on Under Armour to $44-$46 from $38-$42.

PRICE ACTION: In late morning trading, Under Armour rose 1.5% to $38.36 per share.