On Thursday, Stifel, a financial services company, revised its price target for Lululemon Athletica Inc. (NASDAQ:LULU) shares, reducing it to $370 from the previous target of $416. Despite the price target cut, the firm continues to recommend a Buy rating for the stock.
The adjustment reflects a cautious stance on the company's near-term prospects, as market sentiment anticipates a potential earnings miss and a downward revision of the full-year 2024 (FY24) guidance.
The analyst from Stifel cited several factors for the revised outlook, including challenges in engaging U.S. consumers which have prompted a revision of the second quarter 2024 (2Q24) estimates.
The new revenue estimate stands at approximately $2.362 billion with earnings per share (EPS) at $2.88, both figures falling below the low end of the company's guidance, which ranged from $2.400 to $2.420 billion in revenue and an EPS of $2.92 to $2.97.
For the full year, Stifel anticipates a 5% reduction in EPS guidance, adjusting it to a range of $13.50 to $13.70. This is a decrease from the current EPS guidance of $14.27 to $14.47. The revised forecast accounts for a $500 million shortfall in revenue and a 30% decremental margin.
Despite acknowledging the challenges, the Stifel analyst highlighted the brand's inherent strengths, including its reputation for innovation, strong economics, and opportunities for international growth.
The firm also pointed out Lululemon's relative value compared to its large-cap athletic peers, noting that Lululemon trades at 17 times price-to-earnings (P/E) on updated fiscal year 2025 estimated EPS, versus a P/E of 23 times for Nike (NYSE:NKE) and 29 times for Adidas (OTC:ADDYY) on consensus estimates.
Stifel's updated price target of $370 implies a P/E ratio of 24.7 times based on the estimated EPS of $15.01 for FY25. The firm's analysis suggests that, over a 12-month horizon, the risk/reward profile for Lululemon's stock remains favorable in light of these considerations.
InvestingPro Insights
As investors weigh Stifel's revised price target for Lululemon Athletica Inc. (NASDAQ:LULU), real-time data from InvestingPro provides a multifaceted view of the company's financial health and market performance. Lululemon's market capitalization stands at $33.2 billion, reflecting its significant presence in the athletic apparel industry. Despite recent price volatility, with a 6-month total return of -41.65%, the company's P/E ratio remains at an attractive 21.34, suggesting a potentially undervalued stock in comparison to near-term earnings growth.
InvestingPro Tips highlight that Lululemon holds more cash than debt, an indicator of financial stability, and liquid assets exceed short-term obligations, showcasing the company's capacity to meet its immediate financial commitments. Additionally, with analysts predicting profitability this year and a proven track record of profitability over the last twelve months, Lululemon's financials may provide some reassurance to investors concerned about near-term uncertainties.
While Stifel has expressed caution, it's worth noting that Lululemon's revenue has grown by 15.65% over the last twelve months as of Q1 2023, and the company maintains a robust gross profit margin of 58.34%. These metrics, coupled with a high return on assets of 25.5%, may underpin the company's long-term growth trajectory. For investors seeking more comprehensive analysis, InvestingPro offers additional tips to help navigate Lululemon's stock potential, available at https://www.investing.com/pro/LULU.
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