On Thursday, BofA Securities adjusted its outlook on Lululemon Athletica Inc. (NASDAQ: NASDAQ:LULU), reducing the price target to $430 from the previous $530, while sustaining a positive stance with a Buy rating. The adjustment reflects a revised sales growth forecast for fiscal year 2024, now set at 9.4%, taking into account lower-than-expected sales growth in North America.
Despite this, the firm anticipates that international sales, particularly in China, will continue to exhibit strong performance, accounting for 21% of total sales.
The firm expects that the company's global square footage expansion of 11% will help mitigate some of the short-term challenges faced in North American comparable sales. BofA Securities believes that if Lululemon can resolve its size and color assortment issues, there may be potential for better performance than currently estimated.
BofA Securities has also revised its fiscal year 2024 earnings per share estimate downwards by 3% to $13.57. This revision is due to the anticipated slower sales growth in North America and a less optimistic gross margin outlook. The new price objective of $430 is based on a 17 times forward fiscal year 2025 enterprise value to EBITDA multiple, a reduction from the previous 20 times multiple.
This valuation also includes a slight premium relative to peers, justified by Lululemon's robust margins and its debt-free balance sheet.
The firm's analysis suggests that while there are some near-term headwinds, Lululemon's strong international presence and solid financial fundamentals provide a basis for continued investor confidence.
The maintained Buy rating indicates that, despite the lowered price target and earnings expectations, BofA Securities still views Lululemon as an attractive investment.
InvestingPro Insights
In light of BofA Securities' recent adjustments to Lululemon's outlook, it's worth noting some key financial metrics and insights from InvestingPro that could provide additional context for investors. Lululemon currently holds a market capitalization of $37.95 billion and is trading at a P/E ratio of 24.31, reflecting investor valuation of its earnings. Notably, the company's revenue has grown by 18.6% over the last twelve months as of Q4 2024, indicating a strong top-line performance. Moreover, Lululemon's gross profit margin stands at a healthy 58.31%, underscoring its ability to maintain profitability despite market challenges.
From the perspective of InvestingPro Tips, two points are particularly relevant for investors considering Lululemon's stock. First, the company holds more cash than debt on its balance sheet, suggesting financial stability and resilience. Second, the stock is currently trading near its 52-week low, which could represent a potential entry point for investors looking to capitalize on the company's long-term growth prospects, especially considering its strong international sales. For a deeper dive into the financial health and future outlook of Lululemon, discover more with InvestingPro, which features additional tips to guide your investment decisions. Use coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription. With 14 additional InvestingPro Tips available, investors can gain a comprehensive understanding of the stock's potential.
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