Wall Street Weighs In On Lululemon's Mirror Acquisition

Lululemon Athletica Inc LULU shares gained 5.5% on Tuesday after the company announced a $500 million buyout of in-home fitness company Mirror.

Mirror is Lululemon’s first major acquisition, and the deal is expected to close in the second half of the year.

New Way To Connect

Bank of America analyst Rafe Jadrosich said Lululemon is gaining another revenue stream and a new way of connecting with its customers.

“We believe LULU can enhance MIRROR’s growth by providing access to LULU’s large and growing active lifestyle customer base and new distribution channels (LULU’s stores and website),” Jadrosich wrote in a note.

Oppenheimer analyst Brian Nagel said Mirror provides Lululemon with a brand new product offering and an opportunity to make a unique customer connection.

“In many ways, the purchase of MIRROR by LULU reminds us of Amazon.com AMZN and the company’s development of Echo and Alexa devices,” Nagel wrote.

Needham analyst Rick Patel said Mirror gives Lululemon access to cutting-edge innovation.

“In our view, LULU has strong liquidity (even incl. this deal) and is wisely making a bet that home fitness (a trend that has accelerated during Covid) is here to stay, and we agree,” Patel wrote.

KeyBanc analyst Edward Yruma said the connected fitness market is an attractive growth opportunity.

“Lululemon’s $500M acquisition of Mirror validates our framework that the connected fitness market is one of the most compelling secular trends in our coverage,” Yruma wrote.

Bad Timing?

Stifel analyst Jim Duffy said Lululemon chose a difficult time to complete an acquisition, but the company has plenty of liquidity to softly close the deal.

“We are appreciative of LULU’s effort to enhance its digital ecosystem and reach new and existing customers on a new platform that has seen solid traction particularly throughout the pandemic (total downloads +62% since March 1, see chart on page 2 for YTD 7-Day average daily users and downloads),” Duffy wrote.

Jefferies analyst Randal Konik said Mirror is a way to get Lululemon into its customers’ homes, but it’s not a game-changer.

“We like LULU's acquisition of MIRROR, but we point out that it is being purchased at
the peak of the at-home fitness mania,” Konik wrote.

Baird analyst Mark Altschwager said Lululemon is expanding its omni-guest experience.

“The price tag looks steep (~5x 2020E revenue), but the acquisition seems like a natural next step for a brand on the leading edge of innovation in terms of product, community, and omni-channel retail,” Altschwager wrote.

Ratings And Price Targets

• Stifel has a Buy rating and $365 target.
• Oppenheimer has an Outperform rating and $370 target.
• Needham has a Buy rating and $345 target.
• Jefferies has a Hold rating and $290 target.
• Baird has an Outperform rating and $330 target.
• Bank of America has a Buy rating and $340 target.

Related Links:

Lululemon Purchases Mirror To Fuel Expansion During Pandemic

6 Lululemon Analysts On Q1 Performance, Coronavirus Strategy