On Friday, Needham analysts upgraded Lululemon Athletica Inc. (NASDAQ: NASDAQ:LULU) stock from Hold to Buy, setting a price target of $475. The upgrade follows a period of underperformance in 2024, during which Lululemon shares declined by 25% compared to the S&P 500's 23% gain. The analysts cited a strong recovery of demand in December, which could signal accelerating sales in the current quarter.
The company had previously issued conservative guidance for Q4 due to a compressed holiday season, but Needham analysts believe this leaves room for potential upside in the company's financial results. Despite a recent improvement in Lululemon's share price, it remains below recent valuation levels. According to InvestingPro analysis, the stock appears slightly undervalued, with a PEG ratio of just 0.36 indicating attractive pricing relative to growth. This discrepancy offers an opportunity for valuation multiple expansion, especially if sales in the U.S. market pick up pace.
Lululemon is scheduled to attend the ICR conference in Orlando next week. Needham suggests that the company might use this event to preannounce positive Q4 earnings, which could further support the stock's performance.
The upgrade reflects Needham's confidence in Lululemon's potential for a near-term rebound, especially considering the conservative Q4 guidance and the possibility of a positive preannouncement at the upcoming conference. The new price target of $475 represents Needham's expectation for the stock's value over the next 12 months.
In other recent news, Lululemon Athletica Inc. has been the focus of several analyst adjustments following its impressive third-quarter earnings report. The company reported a 9% revenue growth to $2.40 billion and earnings per share of $2.87, surpassing expectations.
Analysts from UBS maintained a neutral rating on Lululemon due to uncertainties regarding the company's growth potential in the Americas. Meanwhile, Baird, Deutsche Bank (ETR:DBKGn), and BMO (TSX:BMO) Capital Markets raised their price targets to $480, $396, and $302, respectively, reflecting confidence in the company's performance and growth potential.
TD (TSX:TD) Cowen and CFRA also increased their price targets to $421 and $376, respectively, citing solid holiday sales, impressive gross profit margins, and a healthy revenue growth rate. Despite these positive adjustments, some analysts, including those from BMO Capital and Deutsche Bank, expressed a cautious outlook due to concerns about the company's valuation and future growth.
These recent developments indicate a generally positive yet cautious sentiment towards Lululemon's financial health and growth prospects. The company's performance varied geographically, with a significant 39% surge in China and a 9% increase in Canada, while U.S. revenues remained flat year-over-year. Despite these varying performances, Lululemon maintains a strong international presence and continues to show potential for further global expansion.
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