Lululemon Athletica (NASDAQ:LULU) outperformed peers yesterday on the back of positive comments from Wells Fargo analysts, who believe there is “too much negativity” priced in the shares.
“With sentiment the lowest seen in 5+ years, we identify key indicators we’re watching for when LULU reports 4Q EPS. We remain confident in our bullish call on: 1) their ability to drive an on-algo FY (esp with China and reasonable NA assumptions), 2) improving inv-to-sales dynamics (inc improved recent checks) and 3) margin drivers (freight/markdowns) supporting GM expansion,” they wrote in a client a note.
Moreover, the analysts like LULU’s valuation as the stock looks cheap.
Lululemon is due to report earnings next Tuesday after market close.
The stock has received an additional boost after Goldman Sachs analysts reiterated a Buy rating today, citing “innovation-led growth and sequentially improving inventory outlook.”
“Our checks remain constructive for brand heat and traffic, with customers continuing to engage with product and LULU issuing several new innovations in recent weeks which we believe could be a tailwind for brand momentum,” they said in a note.
The GS analysts see an “attractive risk/reward at current levels, and see a constructive path for stock outperformance in coming quarters driven.”
While the GS analysts acknowledge that Lululemon operates in a tough environment, they state that negatives are “now fully appreciated by investors, as the tone of our inbound client conversations has become decidedly more negative over the past few months.”
LULU shares are up 1% in pre-market Thursday and down 5.2% year-to-date (YTD).