On Wednesday, TD Cowen reaffirmed its Buy rating on Lululemon Athletica Inc. (NASDAQ: NASDAQ:LULU) but reduced the price target to $437 from the previous $515. The adjustment comes amid a landscape where the company's valuation multiples have dipped to their lowest since 2017. This decline is attributed to increased competition and weaker barriers to entry in the market, which have also led to a multi-year discount when compared to peers.
The analyst from TD Cowen believes that the fiscal year 2024 earnings per share (EPS) guidance provided by Lululemon may be on the conservative side. Despite a moderation in growth, with an expected 3-year EPS compound annual growth rate (CAGR) of 13%, the firm points out that Lululemon's financial returns on capital remain among the highest in the sector. This perspective suggests that the market may be overestimating the risks posed by competition.
According to the analyst, investors are currently anticipating a potential reduction in guidance from Lululemon.
The brand has been facing a challenging environment, yet it still maintains strong financial metrics compared to its industry counterparts. The new price target of $437 reflects the analyst's adjusted expectations while continuing to recognize the company's robust financial performance.
Lululemon Athletica Inc. is navigating an increasingly competitive athletic apparel market. The lowered price target indicates an adjustment to market conditions while the maintained Buy rating suggests confidence in the company's long-term prospects. Despite the lowered expectations, the analyst's outlook remains positive on the stock's future performance.
InvestingPro Insights
In light of TD Cowen's revised outlook on Lululemon Athletica Inc. (NASDAQ: LULU), it's valuable to consider additional insights provided by InvestingPro. Notably, Lululemon holds more cash than debt on its balance sheet, indicating a strong financial position that could enable the company to navigate market fluctuations more effectively. This aligns with the analyst's view of the company maintaining high financial returns on capital. Moreover, the Relative Strength Index (RSI) suggests that the stock is currently in oversold territory, which could signal a potential rebound if market sentiment shifts.
InvestingPro Data further reveals that Lululemon has a P/E Ratio of 24.05, which is relatively low compared to its near-term earnings growth, and a PEG Ratio of 0.3 for the last twelve months as of Q4 2023. Additionally, the company's revenue growth of 18.6% over the same period highlights its capacity to expand despite a competitive landscape. For investors seeking a more comprehensive analysis, InvestingPro offers additional tips on Lululemon, including insights on its stock performance over various periods and analysts' profitability predictions for the year.
For those interested in deeper analysis, use coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription at InvestingPro. With 12 additional InvestingPro Tips available, investors can gain a more nuanced understanding of Lululemon's financial health and market position.
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