USA - Analyst reveals a 'rare retailer with momentum' to own in 2023

Lululemon Athletica Inc ( NASDAQ: LULU ) has lost about 15% since early December but a Wells Fargo analyst says a near full recovery is on the cards for the coming months.

Lululemon stock has upside to $380

Ike Boruchow, on Friday, raised his price objective on the athletic apparel retailer to $380 a share that represents more than a 15% upside on its previous close.

He’s bullish primarily the company’s top-line that he expects will remain strong moving forward.

Lululemon is a defensive, rare name with momentum. It’s top-line resilience in past few years has been stunning, with 2022E’s top-line expected to be double 2019 levels. We expect it can remain resilient across our softlines space.

Last month, the Canadian multinational reported a 28% increase in its quarterly revenue on a year-over-year basis ( source ). Ike recommends buying Lululemon stock also because it serves the higher income consumer and is, therefore, better positioned to weather an economic downturn.

Lululemon stock is reasonably valued

At writing, Lululemon stock is at double the price at which it traded at the height of the pandemic.

Still, the analyst added, shares continue to be attractive in terms of valuation since they’re trading meaningfully below their average multiple over the past few years. Freight and margin visibility were noted as other reasons for the bullish call.

With freight expected to be a +50bp tailwind in FY22, it can remain a tailwind looking to FY23, lending optimism for gross margin expansion. With LULU not a markdown-driven model, we see more visibility than most on margin front.

On the flip side, Ike downgraded other notable retail stocks like Ulta Beauty and VF Corp on Friday.

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