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MKM Partners Raises Lululemon’s Price Target to $82 per Share

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Jul. 12 2016, Published 1:41 p.m. ET

Price movement

Lululemon Athletica (LULU) has a market cap of $10.3 billion. It fell by 0.30% to close at $76.49 per share on July 11, 2016. The stock’s weekly, monthly, and year-to-date (or YTD) price movements were 3.4%, 5.8%, and 45.8%, respectively, that day. LULU is trading 6.3% above its 20-day moving average, 13.3% above its 50-day moving average, and 29.5% above its 200-day moving average.

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Related ETFs and peers

The iShares Edge MSCI USA Quality Factor ETF (QUAL) invests 0.11% of its holdings in Lululemon Athletica. The ETF tracks an index of US large- and mid-cap stocks, selected for having a higher ROE (return on equity), more stable earnings growth, and a lower debt-to-equity ratio than peers. The YTD price movement of QUAL was 3.8% on July 11.

The iShares Dow Jones US ETF (IYY) invests 0.03% of its holdings in Lululemon Athletica. The ETF tracks a broad, cap-weighted index of US companies covering 95% of the US market.

The market caps of Lululemon Athletica’s competitors are as follows:

  • Nike (NKE): $94.4 billion
  • Gap (GPS): $8.7 billion
  • Express (EXPR): $1.1 billion

Lululemon Athletica’s rating

MKM Partners has increased Lululemon Athletica’s price target to $82 from $77 per share and rated the stock as a “buy.” TheStreet Ratings rated the stock as a “buy” with a score of “B-.”

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Performance of Lululemon Athletica in fiscal 1Q16

Lululemon Athletica reported fiscal 1Q16 net revenues of $495.5 million, a rise of 17.0% over the net revenues of $423.5 million in fiscal 1Q15. The company’s gross profit margin and income from operations fell by 0.62% and 15.3%, respectively, between fiscal 1Q16 and the prior year. Its net income and EPS (earnings per share) fell to $45.3 million and $0.33, respectively, in fiscal 1Q16, compared with $47.8 million and $0.34 in fiscal 1Q15.

LULU’s cash and cash equivalents and inventories rose by 9.7% and 0.77%, respectively, between fiscals 4Q15 and 1Q16. Its current ratio rose to 4.8x and its debt-to-equity ratio fell to 0.23x in fiscal 1Q16, compared with a current ratio and a debt-to-equity ratio of 4.1x and 0.28x in fiscal 4Q15. During fiscal 1Q16, the company repurchased 0.2 million shares of its common stock at an average price of $65.01 per share.

Projections

The company has made the following projections for 2Q16 and 2016:

Fiscal 2Q16

  • net revenue in the range of $505 million to $515 million based on total comparable sales in the mid-single digits on a constant-dollar basis
  • EPS in the range of $0.36 to $0.38
  • 137.5 million outstanding weighted-average shares
  • tax rate of 30.2%

Fiscal 2016

  • net revenue in the range of $2.3 billion to $2.35 billion based on total comparable sales in the mid-single digits on a constant-dollar basis
  • EPS in the range of $2.08 to $2.18, or $2.05 to $2.15 when normalized for tax and interest adjustments made during fiscal 1Q16
  • 137.5 million outstanding weighted-average shares
  • tax rate of 28.9%

In the next part of this series, we’ll take a look at The Hershey Company.

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