UPDATE: Lululemon Shares Respond To Rating Change

Shares of Lululemon LULU are up more than two percent in pre-market trading following an upgrade by Sterne Agee.

Sterne Agee currently has a Neutral rating on Lululemon.

Commenting on valuation, analyst Sam Poser stated, “There is a likelihood that LULU will continue to drift lower, but the risk/reward does not warrant pressing the negative point… At the current stock price, LULU is trading at ~22x our 2015 EPS estimate of $1.97 and ~19x the 2015 Factset EPS estimate of $2.24. Short interest is now over 23% of the float.”

Related: Lululemon: Takeover Target?

Poser goes on to write about the catalysts that have weakened shares over the past year to below Sterne Agee’s previous one-year target. These include an erosion of guest experience, the resignation of Christine Day and comments by founder Chip Wilson.

However, according to Sterne Agee, things are not all bad.

“The new product presented at the recent analyst day was more compelling than recent offerings. The women's product was, in our view, too focused on the core LULU customer.”

Shares of Lululemon were last trading up 2.37 percent at $44.00 in pre-market trading.