Stock Analysis & Ideas

Lululemon Can Keep on Delivering the Goods, Says Deutsche Bank

The world is currently beset by a plethora of worries which are impacting everyone across the globe. But be they Covid, supply chain woes, rising inflation or an ongoing war, consumers still need to get into some comfortable yoga gear.

That could be the conclusion reached following the latest set of quarterly results from Lululemon (LULU). Investors felt good with the athleisure specialist’s Q4 earnings and sent shares higher in the subsequent session.

Boosted by a 35% uptick in international sales alongside North American sales rising by 21%, revenue came in at $2.13 billion, in-line with the Street’s call. On the bottom-line, adj. EPS of $3.37 outpaced the consensus estimate of $3.27.

Overall, for the full-year, revenue rose by ~42% to land at $6.3 billion, crossing the $6 billion mark in annual sales for the first time.

More impressive than those metrics, however, was the company’s outlook – a key ingredient nowadays to keep investors on side.

For Q1, Lululemon anticipates revenue will come in between $1.525 billion to $1.55 billion, while the analysts were expecting $1.4 billion. For FY22, the company guided for revenue between $7.49 billion to $7.62 billion and EPS in the $9.15 to $9.35 range. Consensus had $7.24 billion and $9.11, respectively.

In another shareholder pleasing move, the company authorized a $1 billion stock repurchase program. 

That said, Deutsche Bank analyst Gabriella Carbone believes that until there is “increased clarity around the volatile macro backdrop,” some investors might still baulk at LULU’s valuation. That, however, is not a concern for the analyst, who finds plenty to be upbeat about.

“We remain confident that LULU can deliver consistent and robust sales trends given the company’s innovative product (driving core growth), category expansion opportunities, international growth potential (LULU is still meaningfully behind peers), and square footage expansion,” Carbone said. “Ultimately, we continue to find LULU’s long-term earnings algorithm attractive (modeling a five-year EPS CAGR of 23% through FY23) and look to the company’s Investor Day on 4/20 for details around longer-term growth targets and margin expansion opportunities.”

To this end, Carbone bumped her price target up from $410 to $428, implying LULU shares have room for 13% growth in the year ahead. The analyst’s rating remains a Buy. (To watch Carbone’s track record, click here)

Most of Carbone’s colleagues agree. Based on 16 Buys, 7 Holds and 1 Sell, the stock claims a Moderate Buy consensus rating. The forecast calls for one-year gains of 11%, considering the average price target clocks in at $420.78. (See Lululemon stock analysis on TipRanks)

To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights.

Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.

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