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Lululemon shares target raised by 35%, slower North America growth factored in

EditorAhmed Abdulazez Abdulkadir
Published 06/12/2024, 17:10
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On Friday, CFRA, a financial research firm, increased its price target for Lululemon Athletica Inc. (NASDAQ:LULU) to $376 from the previous $280, while maintaining a Hold rating on the stock. According to InvestingPro analysis, LULU is currently trading near its Fair Value, with the stock showing a strong financial health score of 3.27 (rated as "GREAT").

The adjustment reflects a $96 increase based on 23.5 times the firm's fiscal year 2026 (January) earnings per share (EPS) estimate. This valuation is below Lululemon's three-year average forward price-to-earnings (P/E) multiple of 30.3 times. The new target takes into account an anticipated slower growth trajectory in North America, which is Lululemon's largest market.

CFRA also raised its fiscal year 2025 EPS estimate for Lululemon by $0.15, bringing it to $14.15, while the fiscal year 2026 EPS estimate remains unchanged at $16.00. The company recently reported normalized earnings for the third quarter (Q3) at $2.87 per share compared to $2.53 in the same period last year, surpassing estimates by $0.15.

Revenue for the quarter was $2.40 billion, exceeding expectations by $39 million and marking an increase from $2.20 billion year-over-year. InvestingPro data shows the company maintains impressive gross profit margins of 58.85% and a healthy revenue growth rate of 10.84% over the last twelve months.

Geographically, Lululemon's performance varied, with U.S. revenues remaining flat year-over-year, while Canada saw a 9% increase, China a significant 39% jump, and the Rest of World a 27% rise. The company's adjusted gross margin for Q3 expanded by 40 basis points year-over-year to 58.1%, attributed to lower inventory provision expenses.

Additionally, Lululemon completed the acquisition of its Mexico franchise during the quarter, adding 15 new stores in the region. The board has also approved an additional $1 billion for share repurchases, supplementing the current plan, which now totals $1.8 billion in remaining repurchase authorization.

The research firm acknowledged that Lululemon's shares are trading near what it considers fair value following a 65% increase from its 52-week low. Despite the Hold rating, CFRA remains positive on the business's fundamentals and its performance across various regions. InvestingPro subscribers have access to 12 additional investment tips and a comprehensive Pro Research Report for LULU, offering deeper insights into the company's valuation, financial health, and growth prospects.

In other recent news, Lululemon Athletica Inc. has seen a series of upgrades following its successful third-quarter earnings report, with a 9% revenue growth to $2.40 billion and earnings per share of $2.87.

TD Cowen has raised its price target to $421, emphasizing the company's solid holiday sales and strong financial health. Piper Sandler increased its target to $340, acknowledging Lululemon's effective management of sales and gross margin.

Guggenheim, maintaining a positive stance, raised its target to $415, citing the company's impressive revenue growth and strong international performance. KeyBanc Capital Markets hiked its target to $400, highlighting the company's robust Black Friday performance and solid gross margins. Stifel set the highest target at $438, reflecting confidence in Lululemon's economic model and global expansion prospects.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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