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Citi opened an upside 30-day catalyst watch on Lululemon Athletica (NASDAQ:LULU) on Friday ahead of the company’s fourth-quarter results.
Analysts, who have a Neutral rating and $350 per share price target on the stock, said in a note that Citi anticipates “an in-line 4Q (3/28 AMC) given mgmt pre-announced in early Jan.” In addition, they see Lululemon management guiding F23 EPS to a range around Citi’s expectation of $11.22 (vs cons $11.32).
“While investors are bracing for weaker sales guidance, we believe mgmt will guide sales in line with their LT algorithm of +mid-teens (we est F23E sales +13%) and take a more conservative approach on GM in 1H23 as they work down inventory (mgmt guided 4QE inv +60%),” analysts wrote.
“With investors anticipating conservative F23 guidance and shares trading at 16.5x F23 EV/EBITDA (well below NKE at 25x),” Citi believes the setup into the Lululemon print is favorable.
Elsewhere, BofA reiterated a Buy rating and $380 price target on Lululemon ahead of the release, stating the company has improving margins and a strong growth outlook. They believe the stock will be on the move as inventory normalizes.
“We think inventory peaked in 3Q22, gross margin pressures are well understood, and an algorithm year (high teens EPS growth) will be best in class,” said BofA analysts.
“Over the past 8 years, LULU’s exceptional growth profile has allowed it to trade at a 6x premium to Nike; this now sits at a 5x discount. As inventory improves sequentially and sales remain strong (with a nice upside opportunity from China), we think this multiple compression will reverse.”
