Last Minute Thought: Buy or Sell Lululemon Before Earnings?

Earnings season is drawing to a close and the shortened week’s first day will see the earnings release of one of 2020’s impressive performers. Lululemon Athletica (LULU) will release Q2 financial results after market close today.

Ahead of the print, Needham analyst Rick Patel tells investors to take the opportunity to load up on the athleisure specialist’s shares. The analyst believes LULU is “one of the best-positioned companies in the current environment.”

Patel said, “We think that LULU’s strong brand and differentiated products position it well to capture demand and gain market share with many consumers at home. Concurrently, Covid-19 has accelerated the secular shift towards digital, which not only plays to LULU’s strength but uniquely drives accretion as the company’s most profitable channel.”

Lulu’s strong Q1 report was based on the resounding success of its online channel. Patel believes that “digital strength continued even after the majority of LULU’s doors reopened by late June.”

Furthermore, now that most companies have reported Q2 earnings, the recent strong showings from athletic peers such as Foot Locker and Dicks Sporting Goods bode well for Lulu’s upcoming report.

On top of the coronavirus driven accelerated move to digital, Patel argues LULU’s 5-day July flash sale “reinforced its online momentum.” All the above trends result in Patel increasing expected DTC (direct to consumer) sales growth from 124% to 134%.

To this end, Patel has increased his 2Q adj. EPS estimate to $0.59 from the previous $0.46 (the Street calls for $0.56) “on higher revenue and GM% projections.”

There’s a target price raise, too. The figure moves from $345 to $430 and represents possible upside of 18% from current levels. Accordingly, Patel’s Buy rating stays as is. (To watch Patel’s track record, click here)

Overall, based on 17 Buy ratings and 10 Holds, the analyst consensus rates LULU a Moderate Buy. However, the average price target comes in at $369.17 and implies shares will remain range-bound for now. (See Lululemon stock analysis on TipRanks)

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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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