Lululemon Athletica Recovering From Merchandising Missteps, Says Analyst

Zinger Key Points
  • Oppenheimer analyst Brian Nagel maintain Outperform rating.
  • LULU's current valuation is its lowest since 2017, says Nagel.

Oppenheimer analyst Brian Nagel reiterated an Outperform rating on the shares of Lululemon Athletica Inc LULU with a price target of $445.00.

The analyst’s EPS forecast of $2.35 remains unchanged and suggests a gain of 3% from $2.28 the prior year, compared with a Street figure of $2.40.

For FY24, the analyst continues to expect EPS of $14.01 versus a current consensus forecast of $14.13 and guidance for $14.00-14.20.

Since the day LULU reported fourth-quarter results, shares are down more than 35% and underperforming meaningfully a decline of just 1% in the S&P 500, noted the analyst.

At current levels, LULU trades at a forward four quarter PE multiple of just 21x, marking the lowest level since May 2017, said the analyst.

The analyst looks upon recent merchandising missteps at LULU as not necessarily unprecedented and likely fixable, nearer-term. 

The analyst also highlighted the latest expanded assortments of fresh colors and new silhouettes, including wide-bottom leggings.

The analyst anticipates signals suggesting that trends at the brand have largely stabilized, lately.

According to the analyst,  a now historically depressed valuation discounts well for prospects for continued, nearer-term sales and profit choppiness, at the company. 

However, underlying growth dynamics for the brand appear intact, improved innovation and marketing should bolster sales expansion, at least somewhat, nearer-term, and share valuations are tracking at historic trough, said the analyst.

While the analyst no longer recommends LULU as a “top pick” across the broader coverage, he views shares as well-positioned, intermediate to longer-term.

Price Action: LULU shares are trading lower by 0.16% at $306.14 at the last check Tuesday.

Image: Pedro Alvarez  from Pixabay

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