Bank of America Merrill Lynch upgraded Lululemon
On August 21, Bank of America Merrill Lynch raised Lululemon Athletica’s (LULU) rating by two notches. The company received a “buy” rating from an “underperform” rating. Analyst Rafe Jadrosich said that Lululemon has been stealing away market share from Nike and Under Armour. Gaining market share will boost the company’s same-store sales ~5% in 2Q17—compared to -1% in 1Q17.
In a research note, Jadrosich noted that Lululemon is “gaining share from saturated competitors” and that the ongoing “weakness in Nike and Under Armour North America apparel sales creates share gain opportunity for Lululemon.”
He said, “Nike and Under Armour have suffered from a lack of innovation, over-distribution in moderate channels, and heavy promotions” while “Lululemon’s fabric and product innovation appears robust.”
He also said, “Lulu will increase its assortment of Jacquard,” which has “higher average selling prices and is difficult to replicate.”
Jadrosich raised Lululemon’s target price to $70 from $49.
Other analysts’ actions
On July 25, Stifel downgraded Lululemon from a “buy” to a “hold” rating with a price target of $66. Analyst Jim Duffy said in a client note that Lululemon stock has a balanced current risk-to-reward ratio after its higher valuations.
Analysts’ view on Lululemon
Analysts have a neutral view on Lululemon and rated the stock a 2.5 on a scale of one (strong buy) to five (strong sell). In comparison, sportswear peers Nike (NKE) and Columbia Sportswear (COLM) received better ratings of 2.3 each, while Under Armour (UAA) is rated at 3.0.
It’s important to note that 35 Wall Street analysts cover Lululemon—46% recommended a “buy,” 49% recommended a “hold,” and 6% recommended a “sell.”
In comparison, 3%, 6%, and 21% of the analysts recommended a “sell” for Nike, Colombia Sportswear, and Under Armour stock.
ETF investors seeking to gain exposure to Lululemon can consider the iShares Morningstar Mid-Cap Growth ETF (JKH), which invests 0.4% of its portfolio in the company.