On Tuesday, UBS analyst maintained a Neutral rating on Lululemon Athletica Inc. (NASDAQ:LULU) with a price target of $360.00, while InvestingPro data shows 14 analysts have recently revised their earnings expectations upward.
The assessment followed the results of the UBS Evidence Lab's 10th annual global athletic wear survey, which indicated uncertainties regarding Lululemon's growth potential in the Americas for the calendar year 2025 (CY25). The company currently maintains a "GREAT" financial health score of 3.15 out of 5.
The survey's findings suggest that while Lululemon's brand remains robust on a global scale, its growth may have plateaued in the United States. According to UBS, the perception of a brand reaching its peak is problematic, as it typically signals challenges in achieving further growth. This perspective casts doubt on whether Lululemon can achieve or surpass the growth rate expectations set by market analysts for CY25 in the Americas, despite maintaining impressive gross profit margins of 58.85% and revenue growth of 10.84% in the last twelve months.
The UBS analyst highlighted the importance of the Americas sales growth rate for Lululemon, noting that it has significant implications for the company's long-term earnings outlook and its price-to-earnings (P/E) ratio. However, the lack of evidence supporting a positive inflection in Lululemon's Americas growth rate for CY25 led to the decision to reiterate a Neutral rating on the stock.
The UBS Evidence Lab's survey serves as a tool for gauging the strength and potential of brands within the global athletic wear market. Despite Lululemon's strong international presence, the survey results have raised concerns about the brand's ability to expand in the already-established U.S. market.
The reiteration of the Neutral rating and the $360.00 price target reflects a cautious outlook on Lululemon's stock performance, based on the survey's insights into the company's growth prospects in the Americas. According to InvestingPro's Fair Value analysis, the stock appears slightly undervalued at its current price of $384.05. Investors seeking deeper insights can access the comprehensive Pro Research Report, available exclusively to InvestingPro subscribers, which includes detailed analysis of Lululemon's valuation metrics and growth prospects among 1,400+ top stocks.
In other recent news, Lululemon Athletica Inc. has seen a series of positive adjustments based on its robust third-quarter earnings report. The company reported a 9% revenue growth to $2.40 billion and earnings per share of $2.87. Baird raised its price target to $480, maintaining an Outperform rating, while Deutsche Bank (ETR:DBKGn) increased its target to $396, keeping a Hold rating. BMO Capital Markets also adjusted its price target to $302, with a Market Perform rating.
TD Cowen increased its price target to $421 based on solid holiday sales and a promising outlook on gross margin, maintaining a Buy rating. CFRA also raised its price target for Lululemon to $376, citing impressive gross profit margins and a healthy revenue growth rate. These upward revisions reflect analysts' confidence in Lululemon's strong performance and growth potential.
The firm's future outlook is bolstered by expectations of new product offerings returning to historical levels by the first quarter of 2025, and its international business showing robust growth, with a 33% year-over-year increase, and a significant 39% surge in China.
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