On Tuesday, financial services firm Raymond James adjusted its outlook for Lululemon Athletica Inc. (NASDAQ:LULU), reducing the price target to $350 from the previous $400, while still maintaining an Outperform rating on the stock.
The revision reflects several factors, including the company's decision to discontinue its Breezethrough fabric in July, which, though not significant by itself, is expected to add pressure on other innovations as the year progresses.
The firm also cited a mix of channel checks and negative signals from businesses targeting wealthier U.S. consumers with incomes over $100,000 as reasons for the adjustment. These insights have led to a reduction in second-quarter and full-year 2024 revenue estimates for Lululemon, placing them slightly below the consensus on Wall Street.
"Based on our conversations with investors and the stock's underperformance, we view the market may be bracing for a guidance cut," said analysts at Raymond James.
Despite these concerns, Raymond James forecasts a modest acceleration in revenue for the second half of the year compared to the first half. This prediction is based on the expectation of better availability of key product features such as smaller sizes and colors.
While acknowledging the challenging U.S. economic environment, Raymond James remains confident in Lululemon's long-term growth drivers. The firm emphasizes the brand's significant potential for international expansion, noting that international sales currently make up only 20% of Lululemon's revenue, compared to more than 50% for its global peers.
The valuation of Lululemon is also highlighted as attractive, with a price-to-earnings (P/E) ratio of 17.5 compared to the 20 times average of its peer group. This is supported by the company's growth and margin profile, which are considered to be above the industry average.
In other recent news, TD Cowen maintained a Buy rating on the company but reduced the price target to $375, citing findings from focus groups which indicate Lululemon's dominant market position.
Jefferies maintained an Underperform rating with a steady price target of $220, predicting potential downside due to factors such as slowing industry trends and increasing competition.
Morgan Stanley (NYSE:MS) kept its Overweight rating but reduced the price target to $329, anticipating a potential second-quarter earnings beat and an increase in full-year guidance.
Stifel revised its price target for Lululemon shares to $370, estimating revenue at approximately $2.362 billion with an EPS of $2.88, despite a cautious stance on the company's near-term prospects.
BTIG reaffirmed its Buy rating and a $360.00 price target, highlighting the company's growth potential despite recent challenges.
Goldman Sachs (NYSE:GS) downgraded Lululemon's stock from Buy to Neutral, reducing its price target to $286.00 due to issues with product execution and innovation.
Truist Securities revised its price target for Lululemon, lowering it to $310 but maintaining its Buy rating.
InvestingPro Insights
As investors digest the recent price target revision for Lululemon Athletica Inc. by Raymond James, it's worth considering the company's financial position and market performance through the lens of InvestingPro data and tips. Lululemon holds a market capitalization of $33.96 billion and a P/E ratio of 21.79, which could be seen as a sign of investor confidence in its earnings potential. Additionally, the company's revenue growth in the last twelve months as of Q1 2025 is notable at 15.65%, indicating a robust sales trajectory.
InvestingPro Tips suggest that Lululemon's balance sheet is solid, as it holds more cash than debt, and its liquid assets exceed short-term obligations. This financial stability is crucial for navigating the uncertain economic landscape. Moreover, the company's stock has taken a significant hit over the last six months, with a 6-month price total return of -41.93%, which could present a potential entry point for investors who believe in the brand's long-term growth drivers, as highlighted by Raymond James.
For those considering Lululemon's stock, it's important to note that the company is trading at a high Price/Book multiple of 8.05. While this may raise concerns about valuation, the company's profitability over the last twelve months and analysts' predictions of continued profitability this year should not be overlooked. Furthermore, Lululemon's track record of high returns over the last decade underscores its market resilience.
Investors interested in a deeper dive into Lululemon's financial health and future prospects can find additional InvestingPro Tips at https://www.investing.com/pro/LULU, including ten more tips that provide a comprehensive analysis of the company's performance and outlook.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.