Lululemon: LULU Stock One of the Best in Apparel, Says Argus
Argus Research maintains a Buy on Lululemon shares given strong growth prospects as well as potential for expansion in men's apparel and China.
Lululemon Athletica (LULU) stock opened the week with some positive news on its side as Argus Research analyst John Staszak said Monday that the "athleisure" firm's prospects are “among the best in the apparel sector.”
“Lululemon has a strong brand and growing direct-to-consumer sales, which we expect will lead to higher margins over the next several years,” Staszak says in a Monday research note on LULU stock. “In addition, we expect revenue growth from the expansion of the company’s men’s clothing line. With relatively few stores outside North America, the company also has substantial opportunities for international expansion, particularly in China.”
Staszak also maintained a $530 price target that implies nearly 30% upside over the next 12 months.
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Lululemon is coming off a Street-beating Q3 report last week that saw profits jump nearly 40% year-over-year to $1.62 per share, thanks in large part to a 23% increase in direct-to-consumer revenues. Net revenues of $1.45 billion were up 30% year-over-year, including a 27% improvement in comparable-store sales. All of this topped analyst expectations.
The upgrade comes amid a decent-but-not-great 2021 for LULU stock. Shares have flipped between underperforming and outperforming the S&P 500 throughout the year. A recent tumble has brought Luluemon's year-to-date gains to 18%, compared with more than 25% for the index.
Staszak says that Lululemon's success has welcomed competition from firms ranging from Nike (NKE) and Adidas (ADDYY) to Nordstrom (JWN) and Dick's Sporting Goods (DKS).
He also notes that LULU stock trades at 42 times Argus’s 2023 earnings estimates, so it’s hardly cheap. But shares “deserve to trade at higher multiples given the company’s increasing comp sales, strong brands, and prospects for continued growth,” he says.
Argus Research is in the majority as it pertains to its bullish sentiment on Lululemon shares. LULU stock currently garners 14 Strong Buys and five Buys from the analyst community, versus 10 Holds and just 1 Strong Sell.
However, the Street isn't as optimistic as Staszak about LULU's upside. A consensus price target of $463.37 implies 13% returns over the next 12 months or so.
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Kyle Woodley is the Editor-in-Chief of WealthUp, a site dedicated to improving the personal finances and financial literacy of people of all ages. He also writes the weekly The Weekend Tea newsletter, which covers both news and analysis about spending, saving, investing, the economy and more.
Kyle was previously the Senior Investing Editor for Kiplinger.com, and the Managing Editor for InvestorPlace.com before that. His work has appeared in several outlets, including Yahoo! Finance, MSN Money, Barchart, The Globe & Mail and the Nasdaq. He also has appeared as a guest on Fox Business Network and Money Radio, among other shows and podcasts, and he has been quoted in several outlets, including MarketWatch, Vice and Univision. He is a proud graduate of The Ohio State University, where he earned a BA in journalism.
You can check out his thoughts on the markets (and more) at @KyleWoodley.
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