On Friday, Stifel maintained a Buy rating on Lululemon Athletica Inc. (NASDAQ: NASDAQ:LULU) and increased the price target to $438 from the previous $370. This adjustment reflects a positive outlook following the company's third fiscal quarter performance, which surpassed consensus estimates with a $39 million revenue and $0.16 earnings per share (EPS) beat. The firm's analyst highlighted Lululemon's gross margin improvement and clean inventory as key factors in the strong quarter.
The company's full-year guidance was also revised upward, adding approximately $45 million in revenue and $0.07 to the EPS at the midpoint. Lululemon's comparable sales trends remained stable across all regions from the second quarter, countering any concerns about diminishing brand appeal or rising competitive pressures. The consistency in messaging about the timing for new product introductions in the first quarter of fiscal 2025 and the anticipated inflection in the U.S. women's business was also noted.
Despite a lack of concrete evidence to support the anticipated newness and business inflection, Lululemon's performance in the second half of the fiscal year lends credibility to these expectations. The company's international momentum was acknowledged as an indication of its global growth potential. After hours trading on the day of the announcement saw Lululemon's shares priced at $376.50, marking a 39% increase quarter-to-date, compared to a 5% rise in the S&P 500.
The analyst concluded that while the market's undervaluation of Lululemon's stock has decreased, the investment's risk-reward profile remains attractive. The justification for a premium rating is supported by Lululemon's robust economic model, which includes a return on invested capital (ROIC) exceeding 35%, and its prospects for global expansion. The new 12-month price target of $438 is based on 25 times the firm's 2026 EPS estimate of $17.50.
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