On Thursday, Stifel, a financial services company, revised its price target for lululemon athletica (NASDAQ:) shares, lowering the previous target price of $416 to $370. Despite the price target cut, the company continues to recommend a Buy rating on the stock.
This revision reflects a cautious stance on the company’s near-term prospects, with market sentiment anticipating a potential earnings miss and a downward revision to full-year 2024 guidance.
The Stifel analyst cited several factors for the revision, including challenges in attracting US consumers that prompted the revision to the second-quarter 2024 (2Q24) estimate.
New revenue is estimated at $2.362 billion with earnings per share (EPS) of $2.88, both figures below the low end of the company’s guidance, which was for $2.400 to $2.420 billion in revenue and $2.92 to $2.97 EPS.
For the full year, Stifel expects a 5% decline in earnings per share guidance, revised to a range of $13.50 to $13.70. That’s down from current earnings per share guidance of $14.27 to $14.47. The revised forecast takes into account a $500 million revenue shortfall and a 30% declining margin.
Despite acknowledging the challenges, the Stifel analyst highlighted the brand’s underlying strengths, including its reputation for innovation, strong economy and international growth opportunities.
The company also noted Lululemon’s relative value compared to its large-cap sports peers, noting that Lululemon is trading at 17 times its price-to-earnings (P/E) ratio on updated fiscal 2025 EPS estimates, versus 23 times P/E for Nike (NYSE:) and 29x for Adidas (OTC:) based on consensus estimates.
Stifel’s updated price target of $370 implies a price-to-earnings ratio of 24.7x based on estimated earnings per share of $15.01 for fiscal 2025. The firm’s analysis indicates that over a 12-month time horizon, Lululemon’s risk/reward profile remains favorable given these considerations.
InvestingPro Insights
As investors evaluate the revised price target for Lululemon Athletica Inc. (NASDAQ:LULU), real-time data from InvestingPro provides a multi-faceted view of the company’s financial health and market performance. Lululemon has a market cap of $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 price-to-earnings ratio remains at an attractive level of 21.34, indicating an undervalued stock relative to near-term earnings growth.
InvestingPro’s advice highlights that Lululemon has more cash than debt, an indicator of financial stability, and that liquid assets exceed short-term liabilities, showing the company’s ability to meet its immediate financial obligations. Additionally, with analysts forecasting profitability this year and a track record of profitability over the past 12 months, Lululemon’s financials could provide some reassurance to investors worried about near-term uncertainty.
While Stifel expressed caution, it is worth noting that Lululemon’s revenue has grown 15.65% over the past 12 months as of Q1 2023, and the company maintains a strong gross profit margin of 58.34%. These metrics, coupled with a high return on assets of 25.5%, could support the company’s long-term growth trajectory. For investors looking for a more comprehensive analysis, InvestingPro offers additional tips to help navigate Lululemon stock potential, available at https://www.investing.com/pro/LULU.
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