By Senad Karaahmetovic
Jefferies analyst Randal Konik downgraded Lululemon Athletica (NASDAQ:LULU) to Underperform from Hold and Under Armour (NYSE:UAA) to Hold from Buy as he sees risks to "too high" consensus estimates.
The analyst notes that LULU was one of the biggest beneficiaries of the pull-forward in demand due to COVID.
“LULU is facing rising competition from companies such as Alo, Athleta, Rhone, Vuori, and others. In what is now an ever-crowding space, we are skeptical of LULU's ability to grow as quickly,” the analyst said in a client note.
Jefferies is also concerned about LULU's sky-high sales per square foot, degrading margins, too-high Street estimates, and also high valuation.
“We believe LULU's multiple will continue to contract as growth slows and risks of margin degradation and earnings misses rise,” Konik added and cut the price target to $200 from $375.
The analyst also downgraded Under Armour with the price target going to $10 from $20.
“We believe UAA's performance could lag peers' top-line growth and EBIT margins ahead, while management volatility clouds visibility.”
Elsewhere, Jefferies continues to see Nike (NYSE:NKE) as the “clear leader in the highly fragmented athletic/athleisure apparel and footwear market”. The retailer is reiterated at Buy with a $155 price target.
“NKE continues to produce FCF margins in-line with that of LULU and ahead of UAA. Therefore, we prefer NKE relative to LULU shares, particularly as LULU's newly launched women's footwear line (and upcoming men's footwear launch in 2023) presents potential margin headwinds. Additionally, we prefer NKE shares relative to UAA given UAA's recent leadership change could drive uncertainty ahead,” the analyst concluded.
Shares of Lululemon and Under Armour are down 4.5% and 2%, respectively.