Lululemon Athletica inc. (NASDAQ: LULU) shares are up almost 5 percent after analysts at Wells Fargo upgraded the stock to Outperform from Market Perform. The firm said "several key negative catalysts are now behind" the company: A tough third quarter, conservative views on the holidays, a "de-risked" first quarter and a "pushed out" margin target.
4 Reasons For 25% Upside
"Put simply, we believe that meaningful improvements to the company’s previously-inefficient supply chain should begin taking hold in 2016," senior analyst Ike Boruchow said. These benefits are expected to include lower product costs, fewer markdowns and a reduced reliance on air freight. A "secular shift" to athleisure is an added macroeconomic bonus.
Going forward, Boruchow expects a valuation range on Lululemon shares between $64 and $66 per share -- the stock presently trades near the $52 range. On a forward P/E basis, this represents a premium to Lululemon peers but slightly below the stock's historical average forward P/E of 30x.
The analyst, lastly, thinks Lululemon has a "significant margin recapture opportunity" on the back of a strategy that extends beyond its core women's market to male customers. Management, he added, expects 350-400 basis points of gross margin improvements over the next year and a half.
Latest Ratings for LULU
| Jan 2016 | Wells Fargo | Upgrades | Market Perform | Outperform |
| Jan 2016 | Jefferies | Upgrades | Hold | Buy |
| Dec 2015 | Bernstein | Downgrades | Outperform | Market Perform |
View More Analyst Ratings for LULU
View the Latest Analyst Ratings
See more from Benzinga
-
Watch This Sleeper: Iconix Brand Shares Up Over 20% Last Three Days Of 2015
-
FXCM Continues Free Fall After CEO, Sterne Agee CRT Comments
© 2016 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.