On Wednesday, Citi analyst adjusted the price target on Lululemon Athletica Inc. (NASDAQ:LULU) shares, bringing it down to $415 from the previous target of $500, while continuing to recommend a Buy rating for the athletic apparel company. The revision comes amid a backdrop of negative sentiment towards the stock, which has seen a 40% decline since the company's fourth-quarter earnings report on March 21.
The analyst cites several factors that bears believe justify a cautious stance on Lululemon, including increased competition, high valuation, and stagnant industry data observed in May. However, during management meetings on April 19, the company acknowledged product execution issues as a contributing factor to weaker U.S. trends but expressed expectations for improvement in May following the introduction of new products and colors.
Despite the lack of significant pickup in May, the analyst believes that trends have not deteriorated further and anticipates modest growth in the Americas for fiscal year 2024. The strength of international markets, particularly China, and the company's ability to manage selling, general, and administrative expenses (SG&A) are seen as mitigating factors that could limit the downside to fiscal year 2024 earnings per share (EPS).
The analyst expects management to revise the fiscal year 2024 EPS guidance to a range of $13.80 to $14.00, compared to the consensus estimate of $14.15. Given the low expectations, extremely negative sentiment, and the market's anticipation of a more significant cut in guidance, the analyst perceives a favorable risk/reward scenario for investors leading into the company's first-quarter earnings report, which is anticipated to align with expectations and is scheduled for release after the market closes on June 5.
InvestingPro Insights
As investors consider Citi analyst Paul Lejuez's adjusted price target for Lululemon Athletica Inc., they may find additional context through real-time data and insights from InvestingPro. Lululemon holds a solid market capitalization of $37.18 billion, with a Price/Earnings (P/E) ratio of 24.05, which adjusts to 23.2 for the last twelve months as of Q4 2024. This P/E ratio is particularly noteworthy when paired with the company's near-term earnings growth, suggesting potential value for investors despite recent price declines.
The company's revenue growth remains robust, with an 18.6% increase over the last twelve months as of Q4 2024, and a gross profit margin standing strong at 58.31%. These figures indicate a healthy financial performance that could underpin the stock's recovery. Additionally, Lululemon's operating income margin of 22.95% reflects efficient management and profitability.
InvestingPro Tips highlight that Lululemon's stock is currently trading at a low P/E ratio relative to near-term earnings growth, and the Relative Strength Index (RSI) suggests the stock is in oversold territory. These factors could signal an attractive entry point for investors. For those seeking further insights, there are 12 additional InvestingPro Tips available at https://www.investing.com/pro/LULU, which could further inform investment decisions. To access these insights, use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
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