Analysts Go Cuckoo For LULU After Q3 Beat

Lululemon Athletica inc. (NASDAQ: LULU) shares are ripping, moving 7 percent higher after a solid third quarter report in the face of a struggling athleticwear cycle.

After showing solid e-commerce growth, comps that were up 8 percent in the quarter, and a men’s business that's quickly gaining traction, lululemon CEO Laurent Potdevin reaffirmed the company’s $4 billion sales target for 2020.

Understandably, the company is receiving praise from the sell-side following the quarterly report. 

Canaccord Upgrades

Canaccord Genuity analyst Camilo Lyon initially feared that a strong denim comeback would hurt lululemon, but the company has fared well despite industry headwinds, he said. Lyon upgraded his rating on lululemon from Sell to Hold and raised the price target from $43 to $70.

“While the denim trend continues to gain momentum across apparel retail, LULU’s Q3 results, and specifically the 24 percent comp in women’s pants, demonstrate the company’s ability to innovate through industry headwinds,” Lyon said.

The analyst acknowledged that he underestimated lululemon’s ability to innovate and gives the company a "great deal of credit." 

A Growing Menswear Business

Lululemon also appears to be turning the corner with its men's business, after reporting 26-percent growth in men's pants sales in the quarter.  The brand has a rocky history with men, but the sentiment among male customers is beginning to change, NPD Group's Matt Powell told Benzinga in September. 

“I think it is easier for a women’s brand to grow a men’s line. LULU has already established a business there. I do not expect men’s to ever rival women’s size though." 

Bernstein Raises Price Target, EPS Forecast

Bernstein analyst Jamie Merriman also praised lululemon’s strong performance, increasing EPS forecasts and upping the price target from $66 to $70.

“There were several positives in Q3 2017 and we expect trends in digital sales growth and gross margin to persist at least through Q1 2018, supporting a better topline and margin performance than we previously expected," Merriman said in a note. 

Bernstein maintains a Market Perform rating on lululemon, and added that strong near-term performance in e-commerce "will likely lead to some re-rating."

Morgan Stanley: Look To International For Future Growth

Kimberly Greenberger of Morgan Stanley displayed measured optimism following LULU's Q3, maintaining an Equal-Weight on the company amid a cautious industry view and raising the price target from $61 to $69.

As the company approaches its North American target of 360 stores, Greenberger said future growth for lululemon will focus on international sales— particularly in China, where sales grew a whopping 450 percent in the quarter.

Moving forward, lululemon has identified digital sales, men’s apparel and international sales as its biggest growth drivers. All three are believed to be $1 billion revenue opportunities, according to Morgan Stanley. 

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