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Analyst: Lululemon's Luxury-Like Positioning Can Stretch Company To A $40B Market Cap

Analyst: Lululemon's Luxury-Like Positioning Can Stretch Company To A $40B Market Cap

Amid all the retail woes apparel companies are seeing, the narrative simply doesn't apply to Lululemon Athletica Inc. (NASDAQ: LULU). The retailer's shares are up nearly 81% year to date.

The LULU Analyst

Cowen analyst John Kernan reiterates an Outperform rating on the stock and raised his price target from $235 to $250.

The Thesis

In a note on Tuesday, Kernan says lululemon has a path to $1 billion in annual free cash flow, “with durability of growth being enhanced by consistent innovation, luxury-like brand position and a community-based model.”

Google trends show Lululemon’s search is up 31% year-over-year on a three-month basis, suggesting digital trends remain robust, said Kernan.

The brands men’s business is targeting $1.4 billion in revenue, a source of upside, but the analyst says growth beyond 2019 suggests a moderation in run rate.

On the women’s side of the business, Cowen is estimating current global apparel retail equivalent sales of $4.3 billion for lululemon, putting the segment in line with Nike Inc (NYSE: NKE) and adidas (AG) (ADR) (OTC: ADDYY) current global women’s apparel businesses.

Kernan says the brands 10% same store-sales growth target could prove to be conservative in fiscal year 2020.

The analyst says the stock remains a top idea on a multi-year basis, as the brand is capitalizing on a major international opportunity, with 60% of new store growth through 2023 originating outside of North America.

All in, the Kernan says if the company can sustain a Nike-like free cash flow multiple, he sees a path to a $40 billion market cap. Lululemon’s market cap currently sits just north of $29 billion.

There is still no word on the company's proposed footwear-line

Lululemon Price Action

Shares of Lululemon were trading down 1.04% at $223.70 at time of publication.

Related Links:

Analysts: Athletic Brands Aren't Making Enough Products For Women

Wall Street Reacts To Yet Another Lululemon Earnings Beat

Latest Ratings for LULU

Jan 2020MaintainsNeutral
Jan 2020MaintainsStrong Buy
Jan 2020MaintainsNeutral

View More Analyst Ratings for LULU
View the Latest Analyst Ratings

Posted-In: Cowen John KernanAnalyst Color Price Target Reiteration Analyst Ratings Best of Benzinga


Related Articles (LULU + ADDYY)

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