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On Friday, UBS analyst Jay Sole adjusted the price target on Lululemon Athletica Inc. (NASDAQ:LULU) shares, bringing it down to $335 from the previous $376, while keeping a Neutral rating on the stock. The $41.46 billion athletic apparel maker, which maintains impressive gross margins of 58.85% and achieved 10.84% revenue growth in the last twelve months, saw its reassessment following fourth-quarter report indicating a less optimistic growth outlook.
The UBS analyst noted that Lululemon appears increasingly unlikely to achieve a double-digit percentage earnings per share compound annual growth rate (EPS CAGR). The company’s fiscal year 2025 guidance suggests a low single-digit percentage sales CAGR in the US from FY23 to FY25. Sole expressed skepticism about the company’s ability to significantly accelerate its growth rate, despite the company’s strong 46% return on equity.
Sole also mentioned that Lululemon’s potential to improve its EBIT margin seems limited, as slower sales growth rates could diminish the opportunity for leveraging fixed costs. Following a revision of EPS estimates, Sole forecasts a 6% five-year EPS CAGR for Lululemon. According to InvestingPro, the stock is trading at a relatively low P/E ratio compared to its near-term earnings growth potential, with 8 additional exclusive insights available to subscribers.
The analyst believes that this growth outlook warrants a 20 times price-to-earnings (P/E) ratio but sees limited potential for the stock to trade above this multiple. Sole pointed out that the market might find it challenging to view Lululemon as a high-growth stock again, which justified the Neutral rating. At the beginning of the year, Lululemon’s stock was valued at a 25 times P/E ratio, a level that Sole doubts the stock will return to without significant evidence of renewed growth potential. Notably, InvestingPro’s Fair Value analysis suggests the stock is currently slightly undervalued, with comprehensive insights available in the Pro Research Report, which offers deep-dive analysis of 1,400+ top US stocks.
In other recent news, Lululemon Athletica Inc. reported strong fourth-quarter earnings, with an earnings per share (EPS) of $6.14, surpassing analysts’ expectations of $5.88. Revenue also exceeded forecasts, reaching $3.61 billion, a 13% increase year-over-year. Despite this, analysts have revised their price targets for the company. Needham lowered its 12-month price target to $366 from $430, maintaining a Buy rating, while JPMorgan reduced its target to $391 from $437, keeping an Overweight rating. Stifel adjusted its target to $424 from $438, maintaining a Buy rating, and Evercore ISI cut its target to $440 from $495, retaining an Outperform rating.
Lululemon’s future guidance has raised concerns among investors, with expectations of a decrease in gross margin and conservative forecasts for fiscal year 2025. The company projects revenue growth of 5-7% for the year, with anticipated earnings per share ranging from $14.95 to $15.15. Analysts at Needham and JPMorgan noted the impact of foreign exchange rates and tariffs on the company’s margins. Despite these challenges, analysts remain optimistic about Lululemon’s product innovation and market expansion strategies, which are expected to drive long-term growth.
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