Is Lululemon About to Shoot 12% Higher?

Most yoga studios and health clubs remain closed. Regardless, investors are flocking to buy shares of athleisure-wear specialist lululemon athletica (NASDAQ: LULU), to the point where the shares hit an all-time high on Friday.

Analyst Matthew McClintock of Raymond James thinks they could go even higher. On Friday, he significantly lifted his target price on the stock to $335 per share from the previous $250. The new level is nearly 12% above the latest closing price.

Image source: lululemon athletica.

McClintock’s rationale is that Lululemon, despite a fairly sturdy and long-tail position on its market, continues to push into new areas to keep its customers interested and returning to its stores. “We believe LULU’s dominance in the growing athletic apparel market will continue to increase as its innovation machine continues to deliver exciting and unique product to its loyal customer base,” the analyst wrote in a research note.

As a result, he believes Lululemon will do a relatively good job of weathering the current economic slowdown caused by the SARS-CoV-2 coronavirus outbreak, which has shuttered a great many retail stores throughout the world. In his analysis, McClintock substantially revised his estimate for the company’s comparable-store sales decline in its Q1 of fiscal 2020 to 14% from the previous estimate of a 24% fall.

These adjustments could be helping to fuel the rally in Lululemon stock. On Friday, it well exceeded the gains of the broader stock market by rising 5.5%.

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Eric Volkman has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Lululemon Athletica. The Motley Fool has a disclosure policy.

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