On Friday, Piper Sandler adjusted its outlook on Lululemon Athletica Inc. (NASDAQ:LULU), increasing the price target to $340 from the previous $260, while retaining a Neutral stance on the stock. Currently trading at $344.81, InvestingPro analysis suggests the stock is slightly undervalued.
The revision follows Lululemon's recent financial performance, which displayed notable resilience in maintaining profitability, with revenue growing at 13.02% year-over-year. Despite a consistent trend in the core U.S. market, with implied comparable store sales experiencing a low single-digit decline, the company's revised earnings per share (EPS) forecast has returned to levels seen at the beginning of the year.
The investment firm acknowledged Lululemon's effective management of sales and gross margin, which InvestingPro data shows stands impressively at 58.54%, highlighting the company's ability to navigate the current retail environment successfully.
The management team at Lululemon has expressed optimism regarding the potential of their new design team to introduce innovative products. This sentiment is tempered with the acknowledgement that operating expenses are on the rise, particularly in marketing, which is set to increase, although it remains lower as a percentage of sales compared to competitors.
Lululemon's market valuation has seen an uptick, with its multiple expanding by four points since the summer. Currently trading at a P/E ratio of 26.67, the stock maintains a strong financial health score of "GREAT" according to InvestingPro metrics. This is attributed to a perceived bottoming out of both the valuation multiple and the earnings component of the stock.
Piper Sandler has revised its earnings estimates upward to $15.20 for the fiscal year 2025, anticipating that consensus estimates will align with this projection. The new price target is based on a 22 times multiple of the projected 2025 earnings per share, an increase from the prior multiple of 17.5.
The firm's report suggests that while there is encouragement derived from Lululemon's stabilization, investors are awaiting a more pronounced upturn in demand within the U.S. market. The company's strategy and future product reception, particularly in the first quarter of 2025, will be pivotal in determining its trajectory.
For deeper insights into Lululemon's valuation and growth prospects, access the comprehensive Pro Research Report available exclusively on InvestingPro, which offers detailed analysis of the company's financial health and future potential.
In other recent news, Lululemon Athletica Inc. has experienced significant changes following their recent third-quarter earnings report.
The company's earnings per share of $2.87 and 9% revenue growth to $2.40 billion surpassed expectations, leading to multiple price target revisions. Guggenheim raised the price target to $415, while KeyBanc Capital Markets and Truist Securities increased their targets to $400 and $420, respectively. Other firms such as Stifel, UBS, BTIG, Telsey Advisory Group, and Bernstein also raised their targets, reflecting optimism about Lululemon's future performance.
The company's international business showed robust growth, with a 33% year-over-year increase, and a notable 39% surge in China. However, the fiscal year 2024 sales growth forecast was revised from 11-12% to 8-9%. The company's management has indicated expectations of further improvements in the U.S. market, with a return to historical performance levels anticipated by the first quarter of 2025.
These recent developments provide investors with an updated perspective on Lululemon's performance and potential. The company's robust economic model, which includes a return on invested capital of 32%, and its prospects for global expansion were reasons for the upgraded targets. Analyst firms such as Morgan Stanley (NYSE:MS), Baird, and Truist Securities have responded positively to these developments, adjusting their price targets to reflect current trends.
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