'We Believe This Momentum Will Likely Continue': 4 Reasons Behind Canaccord's Lululemon Upgrade

Investors should take advantage of Lululemon Athletica Inc. LULU’s 15-percent pullback over the last month, according to Canaccord Genuity. 

The Analyst

Analyst Camilo Lyon upgraded Lululemon from Hold to Buy and raised the price target from $152 to $160.

The Thesis

The recent pullback skews the yogawear maker's risk-reward profile to the upside, as the company’s strategic plans have incited acceleration in its products, customer acquisition and international brand awareness, Lyon said in the Tuesday upgrade note. (See his track record here.) 

These factors should support comp growth in the mid-teens this year, the analyst said. 

Canaccord's new bull thesis for Lululemon has four underlying drivers, Lyon said: 

• Indications that Q3 comps are trending above the retailer's guidance. “Based on the solid early reception to its fall/winter assortment, we believe this momentum will likely continue into Q4.”
• Lululemon’s product development, marketing and digital experience should enable strong traffic.
• Lululemon is still in the early stages of international expansion. “Given the focus on key growth markets (e.g. China, UK, Germany) we believe international will continue to grow at an accelerated pace," the analyst said.
• The addition of a strong CEO and CFO should give the company the opportunity to leverage the market, Lyon said. 

Canaccord's channel checks in both the U.S. and Canada show momentum for the company as overall sales continue to increase, he said. 

The analyst said he was impressed by Lululemon's in-store product assortment, including new versions of strong-selling franchises, new collections, an improved bra assortment and a "new and improved" outwear collection. 

Price Action

Lululemon shares were up 0.72 percent at $138.42 at the time of publication Wednesday. 

Related Links:

Argus Upgrades Lululemon On Multiple Growth Levers

Bernstein Questions The Sustainability Of Lululemon's Momentum

Public domain photo via Wikimedia.