Lululemon Athletica Inc. (LULU) is stretching its valuation even further as earnings results again exceeded already bullish expectations
Shares of the Canadian athleisure leader jumped more than 5% in pre-market trading Friday, implying an all-time high opening price that could touch $200 a share after Lululemon beat top- and bottom line expectations for its fiscal second quarter on Thursday evening.
Highlighting its consistency, Lululemon saw same-store sales accelerate by double-digit percentages for a staggering seventh straight quarter, aided by continued growth in men's, digital and international segments.
Best infographics in retail.
35% Mens growth.September 5, 2019
"Momentum in the business remains strong across product categories channels and regions," CEO Calvin McDonald said. "We're now two quarters into our 5-year vision, and I'm pleased with the strong execution and passion across the business to continue to deliver on our growth priorities."
On that path, Lululemon said it sees full-year sales in the range of $3.8 billion to $3.84 billion, up from its prior range of $3.73 billion to $3.77 billion, and earnings per share of $4.63 to $4.70, which is 12 cents higher than the top end of its prior forecast.
Analysts are impressed.
"We are encouraged by early proof points from investments in new categories and with both in-store and online experiences," Stifel analyst Jim Duffy said. "Compelled by the growth momentum and runway, we remain confident in justification for a premium multiple to 20%+ earnings growth expectations through 2021."
Duffy advised clients that the stock is still a "Buy" even at these elevated levels and set his price target on shares to $238.
"We see potential for upside driven by whitespace opportunities and opportunistic repurchases," Duffy said. "Against stiffening compares, comp deceleration is inevitable, but with multiple untapped/underpenetrated growth levers we expect low double-digit revenue growth can continue and expect a premium multiple holds."
More than 80% of analysts polled by FactSet raised price targets on Lululemon stock following its earnings release, allowing for some expansion of an already-hefty multiple.
Still, the consensus price target on shares stands at about $206, echoing the sentiment of many analysts who believe the valuation fits about right at the current level.
"At present, we see valuation as fair for LULU in the dynamic retail landscape, and remain on the sidelines for now," Wedbush analyst Jen Redding said. "We believe that at current valuation (near 52w high and 51x earnings), the market has priced in much of the growth to come."
As Lululemon encounters tougher comparisons year over year in the back half of the year and the stock trends to all-time highs, Redding advised it is not the time to chase the name.
The debate appears to be, as it has been for much of 2019, as to when the market finally feels comfortable with the premium multiple assigned to the stock.
For Action Alerts PLUS portfolio manager Jim Cramer's contrasting thoughts on why the stock is indeed a buying opportunity even at its current heights, click here.