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Looking Beyond Omicron, LULU Shows Hope
Stock Analysis & Ideas

Looking Beyond Omicron, LULU Shows Hope

Lululemon Athletica (NASDAQ: LULU) is a top trending stock for grim reasons. News of the athletic apparel retailer trimming its Q4 2021 outlook to factor in severe Omicron variant-led impacts did not sit well with investors, many of whom shed LULU stock from their portfolios in panic.

After hosting top executives of Lululemon in a virtual meeting at the ICR Conference, Deutsche Bank analyst Gabriella Carbone was also slightly discouraged with the update. However, the analyst thinks that the near-term roughages are likely beyond management’s control, and the long-term prospects are still solid.

Enough Resources to Recover from Omicron?

Lululemon is not the only company to have been impacted by capacity constraints due to the rising cases of the Omicron variant of the coronavirus.

Many retailers who updated their Q4 views recently mentioned a post-Christmas slowdown continuing into this month, because of Omicron.

Carbone believes that Lululemon is in a better position than most of its peers to overcome these shortfalls and come back to speed. The company may even beat its trimmed guidance for revenues and earnings per share. Management also assured that the company’s inventory is expected to improve soon.

Lululemon’s innovative product roster and pricing plans make it a great candidate for delivering consistent sales. The company does not intend to resort to exorbitant price hikes to beat inflation.

Speaking of profitability, Carbone expects Lululemon to expand its operating margin this year. Moreover, the analyst also expects the company to deliver a five-year EPS CAGR of 23% through 2023.

From the Experts

With these insights, Carbone reiterated a Buy rating for the stock. However, she lowered the price target to $453 from $484 to take into account the Omicron impacts and high valuation.

The rest of Wall Street is treading cautiously with rating the stock. Notably, 11 of the 17 analysts covering the LULU stock believe it is a good Buy opportunity for investors, and six analysts believe it is better to Hold and wait for a better entry or exit point. On average, the stock has a Moderate Buy rating.

Moreover, the average LULU price target is $446.71.

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