On Thursday, HSBC upgraded shares of Lululemon Athletica Inc. (NASDAQ:LULU) from Hold to Buy, setting a stock price target of $425.00. The upgrade comes after the athletic apparel company experienced a significant drop in stock value, declining 40% year-to-date, which contrasts with the generally more stable sporting goods sector.
Lululemon faced challenges following its peak in January 2024, as concerns about the growth sustainability in North America emerged. The company's first-quarter performance showed flat comparable sales in the Americas, prompting caution among investors. This slowdown was a departure from Lululemon's previous consistent performance of surpassing expectations and raising forecasts.
The downgrade in performance was partly attributed to inventory issues, particularly in women's products, where the company missed on offering a complete range of colors and sizes. These issues are currently being addressed, as stated by HSBC.
Despite the struggles in the North American market, Lululemon's international sales painted a brighter picture. The company reported a 7% increase in global comparable sales, with mainland China and other regions achieving a combined growth rate of 29%, and overall international business expanding by 40%. This robust international performance supports the potential for international sales to eventually account for half of Lululemon's total business.
HSBC highlighted that despite the stock's recent devaluation, earnings revisions have been minimal. The firm believes that the market has overly penalized Lululemon's shares, indicating a potential undervaluation at the current price level.
In other recent news, Lululemon Athletica Inc. has seen varying adjustments from financial analysts following its first-quarter earnings report. The company's earnings per share (EPS) of $2.54 surpassed expectations, driven by robust sales growth, with international sales up 40% and U.S. sales up 2%. KeyBanc revised its price target for Lululemon to $415, maintaining an Overweight rating, despite acknowledging certain "missed opportunities" during the quarter.
BofA Securities raised its stock price target for Lululemon to $440, reflecting a positive outlook on the company's future growth. Conversely, BMO Capital cut its share price target to $384, following Lululemon's recent financial performance disclosure. CFRA also reduced its 12-month price target from $550.00 to $435.00, but maintained a Buy rating.
BTIG maintained a Buy rating on Lululemon, reaffirming a $425 price target, citing potential growth in the second half of the year. Wells Fargo reduced its price target to $350, maintaining an Equal Weight rating, citing merchandising challenges and escalating industry competition.
TD Cowen raised Lululemon's stock price target to $447, highlighting the company's strong international performance and raised fiscal year EPS guidance. These are among the recent developments for Lululemon Athletica Inc.
InvestingPro Insights
In light of HSBC's recent upgrade of Lululemon Athletica Inc. (NASDAQ:LULU) to Buy, InvestingPro data provides further context to the company's financial health and market performance. Lululemon holds a market capitalization of $39.96 billion, with a P/E ratio of 26.04, reflecting investor sentiment about its earnings potential. The company's strong revenue growth of 18.6% over the last twelve months as of Q4 2024 is particularly noteworthy, indicating a healthy expansion pace.
InvestingPro Tips suggest that Lululemon's balance sheet is robust, with cash reserves exceeding debt, and liquid assets covering short-term obligations. The company's stock has taken a significant hit over the last six months, with a 33.08% decline, which may present a buying opportunity as suggested by the upgrade. Moreover, analysts predict profitability this year, and the company has been profitable over the last twelve months, reinforcing HSBC's positive outlook.
For investors seeking more in-depth analysis, InvestingPro offers additional tips on Lululemon, which can be accessed at https://www.investing.com/pro/LULU. As an added benefit, use the coupon code PRONEWS24 to receive an additional 10% off a yearly or biyearly Pro and Pro+ subscription. With 11 more InvestingPro Tips available, subscribers can gain a comprehensive understanding of Lululemon's investment potential.
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