Lululemon Athletica, a leading athleisure brand, has experienced a remarkable surge in its stock, with a growth rate exceeding 40% over the past year. However, Wells Fargo, a prominent financial institution, believes that this upward trajectory may soon come to an end.
On Monday, analyst Ike Boruchow decided to downgrade Lululemon shares from Overweight to Equal Weight, just three days ahead of the company’s third-quarter earnings report. While he maintained his price target of $445, this downgrade caused shares to drop by 3% in late-morning trading, reaching $452.86.
It’s important to note that Boruchow had previously upgraded Lululemon to Overweight in January of the preceding year. Back then, his enthusiasm was fueled by multiple factors such as the potential for reduced freight costs, expanding profit margins, international growth, and a more favorable inventory position. However, in a recent note to clients, Boruchow stated that these factors have since “played out.”
As we approach the new year, the Wells Fargo analyst is skeptical about whether Lululemon can maintain its current growth levels and meet the high expectations set by investors.
Furthermore, during this earnings season, several companies have cautioned that consumers are becoming more cautious with their spending habits. Although Lululemon has largely remained unaffected by this trend so far, there are concerns among some investors that the company might not be immune to the macroeconomic pressures that are burdening other businesses.
Stay tuned for Lululemon’s upcoming earnings report, which will shed further light on the company’s performance and its ability to navigate these challenges.
A Promising Outlook for Nike Amid Market Volatility
A well-known company like Nike is proving its resilience amidst market turbulence. With a lower valuation, it is better equipped to weather the current pullback, according to experts.
The recovery prospects and self-improvement initiatives at Nike have made it an increasingly attractive long-term investment, as it moves forward into 2024. This sentiment led to the removal of Lululemon from the list of top picks and its replacement with Nike. The move was supported by analyst Boruchow, who raised Nike’s price target to $125 from $120 and maintained an Overweight rating for the stock.
As of Monday, Nike’s shares experienced a 0.4% increase, reaching $113.94.
On Thursday, Lululemon’s third-quarter earnings report will shed light on whether their sales trends are slowing down. Despite any potential challenges, market consensus estimates anticipate an impressive 18% year-over-year revenue growth, projecting $2.19 billion in quarterly revenue. It is noteworthy that a significant majority of analysts rate the stock as Overweight, accounting for almost three-quarters of the total. The remaining 18% rate it as Hold, while 8% have a Sell rating.
