Investing.com -- Needham & Company upgraded Lululemon Athletica (NASDAQ:LULU) Inc. to a Buy rating from Hold, setting a 12-month price target of $475 on the stock in a note Friday.
The upgrade comes amid signs of re-accelerating U.S. sales trends and expectations of positive catalysts in the near term.
According to Needham's analysis, Lululemon experienced a strong recovery in demand during December, which suggests a potential acceleration in U.S. sales for the current quarter.
"Our checks suggest a strong recovery of demand in December," analysts noted, indicating that the brand’s performance during the holiday season was robust.
The company's guidance for the fourth quarter was conservative, reflecting the compressed holiday season.
However, Needham sees upside potential to these numbers, especially with Lululemon’s attendance at the upcoming ICR conference in Orlando, where a positive preannouncement of Q4 earnings could occur.
"We believe LULU performed well during the key Holiday selling period," the analysts wrote, highlighting increased store traffic, lean inventory levels, and strong performance in credit card and Google (NASDAQ:GOOGL) Trends data.
Despite some recent improvement in its share price, Lululemon's stock remains below recent valuation levels, offering room for multiple expansion if U.S. sales continue to re-accelerate, according to the firm.
The analysts also cited Lululemon’s low tariff risk as a positive factor, with only 2% of its sales base being made in China and imported to the U.S.
Needham’s FY24-26 EPS estimates for Lululemon have been adjusted to $14.16, $15.34, and $17.04, respectively, up from previous estimates.
The firm believes that Lululemon’s shares, currently trading at a mid-20's P/E on FY25 estimates, have the potential for more multiple expansion, driving the stock price higher.