Buy The Dip In Lululemon, Analyst Says In Upgrade

Shares of Lululemon Athletica Inc LULU are down more than 35% over the past month and this represents a "good entry point" to buy, according to Needham.

The Lululemon Analyst

Rick Patel upgraded Lululemon's stock from Hold to Buy with a new $200 price target.

The Lululemon Thesis

The case for buying Lululemon's stock is based on expectations for the company to show a mid-teens percentage sales growth and "even stronger" earnings growth once coronavirus headwinds end, Patel wrote in a note. Along with sales and earnings growth, gross margins and SG&A leverage will both improve.

Meanwhile, Patel said the company's "sizable" digital exposure of more than 25% of total sales and growing omnichannel capabilities suggests it can "absorb lost sales" from lost physical retail sales. In fact, the online store has been performing "very strongly" and online sales can grow as a percentage of total sales over time.

See Also: Nike Stores Across The World To Temporarily Close

Once the coronavirus pandemic ends, Lululemon could be in a favorable position to continue ramping up international stores, especially in France, Germany, Korea and Japan. China is a longer-term potential from an online perspective through its own site and partners like Tmall.

Lululemon's global expansion plans are consistent with its April 2019 Investor Day presentation where management said it wants to quadruple its international business. This outlook is "achievable" and the global market will remain one of the company's most notable drivers of growth.

LULU Price Action

Shares of Lululemon were trading higher by more than 7% Monday at $177.73.