Is Lululemon Athletica (LULU) Set to Surge 18%?

Is Lululemon Athletica (LULU) Set to Surge 18%?

Posted On November 30, 2023 10:36 am

Shares of Lululemon Athletica Inc. (LULU) have witnessed continued momentum. Over the past month, the stock has gained 8.7%. Its recent uptrend appears to be the result of a research note issued on November 17 from analysts at Truist Financial, which initiated coverage on LULU shares.

The firm set a “Buy” rating and a $500 price target on LULU stock. This target implies more than 18% upside from the current price level.

Truist Financial likes LULU’s growth profile compared to other retailers in the athletic apparel space. In their coverage of LULU, analysts noted that they “believe Lululemon has some of the strongest brand loyalty in the activewear industry as its direct to consumer model enables it to invest more in product & foster deeper customer relationships.”

This brand loyalty, combined with the retailer’s continued expansion initiatives in several key global markets, could provide significant growth that other retailers may struggle to achieve in the upcoming years.

LULU’s shares have surged more than 13% over the past six months and 30.6% year-to-date to close the last trading session at $422.44. Moreover, the stock is trading above its 50-day and 200-day moving averages of $393.67 and $366.77, respectively, indicating an uptrend.

Now, let’s discuss several factors that could impact LULU’s performance in the upcoming months:

Addition to S&P 500 Index

Inclusion to the S&P 500, the most widely followed benchmark of the U.S. stock market, added to an already winning year for LULU. The Canadian athletic clothing company joined the major equity benchmark before the opening of trading on October 18.

“We look upon the addition of shares to the major index as a potential catalyst for incremental interest and buying,” Oppenheimer analyst Brian Nagel wrote in a note to clients.

Despite prevailing economic uncertainty, higher-income consumers’ willingness to keep spending on renowned apparel brands, including Lululemon and Abercrombie & Fitch Co., lifted shares.

Positive Recent Developments

On September 27, LULU and Peloton Interactive, Inc. (PTON) announced a five-year strategic global partnership through which Peloton will become the exclusive digital fitness content provider for Lululemon, and Lululemon will be the primary athletic apparel partner to Peloton.

This multi-dimensional agreement brings together the best in fitness content and athletic apparel to inspire a combined community of more than 20 million members and guests globally. This collaboration will enable Lululemon to enhance its brand awareness, acquire more customers, and generate incremental revenue through PTON’s online channels and physical stores.

On June 6, lululemon and Xponential Fitness, Inc. (XPOF), the largest global franchisor of boutique fitness brands, renewed their partnership, bringing an expanded selection of digital workouts to Lululemon Studio. This collaboration builds upon the success of the initial launch last October and further enhances the distinctive offerings available to Lululemon Studio members.

Robust Financial Performance in the Last Reported Quarter

The athletic apparel retailer reported sales and earnings that…

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