MKM Names Lululemon Its Top Pick For 2018

Lululemon Athletica inc. LULU is is building momentum into 2018, according to MKM Partners.

The Analyst

MKM Partners analyst Roxanne Meyer maintained a Buy on shares of Lululemon athletica and upped the price target from $81 to $89. Lululemon was also named MKM's top pick in 2018.

The Thesis

The results of MKM Partners' 10th proprietary survey support a bullish view on Lululemon, with increased confidence in the holiday season and beyond, Meyer said in a note. (See Meyer's track record here.)

The company's recent third-quarter results and fourth-quarter outlook show that a strong brand, focus on innovation and customer connection are lifting comp gains, the analyst said.

Lululemon is likely to exceed comp and earnings targets, Meyer said.

"Longer-term, we see earnings power potential from DTC growth, extended supply chain opportunities and SG&A leverage, and believe our high-end out-year estimates could prove conservative."

Meyer named key takeaways from MKM's Lululemon survey:

The fourth quarter is off to a solid start, with men's faring well — but women's is inflecting.
Holiday purchase intentions are pointing to gains in transactions and average dollar sales.
Customers are more bullish on spending intentions over the next three to six months than on current spending.
MKM sees long-term earnings power potential across its model and believes its high-end out year estimates could prove conservative.

MKM Partners raised its fourth quarter earnings per share estimate to the high end of the guidance range at $1.22. The firm also increased its 2018/19 estimates on the basis of a projection that the company can achieve a flat SG&A rate at the minimum.