Investing.com -- CFRA Research analysts downgraded Lululemon Athletica (NASDAQ:LULU) stock from Strong Buy to Hold and slashed the price target from $400 to $280.
According to the firm’s note the adjustment is based on a 20.0x multiple of the firm's fiscal year 2025 (ending in January) earnings per share (EPS) estimate, which is below Lululemon's one-year average forward price-to-earnings (P/E) multiple of 26.9x.
The downgrade reflects CFRA's concerns about inventory issues that Lululemon is facing as it heads into the holiday season. These issues could potentially affect the company's sales in the third and fourth quarters.
“After a nearly 20% pop from its post-Q2 earning low, we now believe shares are due for consolidation,” analysts wrote.
They maintain a positive long-term outlook on Lululemon, citing the brand's strong resonance with consumers across various age groups.
CFRA also recognizes the company's growth potential in international markets, particularly in Mainland China. However, the firm believes that Lululemon may encounter challenges in bringing the right products to market in the near term.
“We think shares will consolidate as we move through the holiday season. We would also like to see a few quarters of improvement to core product inventory,” analysts added.
Lululemon lowered its full-year forecast and reported its first revenue miss in over two years in late August, following a misstep with a much-anticipated product launch and slowing growth in the Americas.
The company now projects its annual net revenue to land between $10.38 billion and $10.48 billion, a reduction from its earlier range of $10.7 billion to $10.8 billion.
Lululemon also adjusted its expected EPS to between $13.95 and $14.15, down from the previous estimate of $14.27 to $14.47.