Canaccord Says Lululemon's Risk To Reward Profile Isn't Attractive

In a report published Monday, Canaccord Genuity analyst Camilo Lyon argued that owning shares of Lululemon Athletica inc. (NASDAQ: LULU) comes with an unfavorable risk to reward profile.Lyon lowered his 2015 estimates on Lululelom due to a weak start to the year that will lead to cautious orders and unfavorable guidance when the company reports its results on Thursday. The analyst now expects the company to earn $1.96 through fiscal 2015 versus prior estimates of $2.08 based on a comp estimate lowered to 2.6 percent from 5.2 percent.Lyon added that the "crux" of his estimate reduction stem from store checks that showed a "wearhouse sale", "we made too much", or "spring cleaning" event across many stores and regions throughout the U.S. The analyst continued that sales were not broadly advertised if at all and weather likely played a role in the traffic drop-off and subsequent inventory buildup."Given the stock's rapid ascent over the past 4 months (+40 percent versus. +1 percent for the S&P 500) we believe the near-term downside risks have risen as expectations for a rebound in comps to MSD will likely prove too optimistic," Lyon wrote. "While we applaud the overhaul LULU has performed to its internal processes over the past year to stabilize the business (e.g. supply chain, product flow, improved design), we believe the stock has run ahead of itself and is subject to a sharp pullback in the interim should the momentum pause (as we believe it has)."Bottom line, Lyon acknowledged many companies have shown a slow start to 2015, but Lululemon's traffic/conversion appears to be an issue of concern. As such, second half 2015 comp growth could also suffer as the company is unlikely to commit to accelerating future order growth when it is seeing decelerating trends in its stores today.Shares remain Hold rated with a price target lowered to $55 from a previous $58.