Why lululemon athletica, Inc. Is Poised to Bounce Back

Does this analyst make a good case? Or is it just more noise from Wall Street?

Feb 13, 2014 at 10:00AM

While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a closer look at particularly stock-shaking upgrades and downgrades -- just in case their reasoning behind the call makes sense.

What: Nomura Securities initiated coverage on lululemon athletica (NASDAQ:LULU) this morning with a buy rating, suggesting that the yoga gear retailer might be ready to rebound.

So what: Along with the bullish call, analyst Robert Drbul planted a price target of $70 on the stock, representing about 45% worth of upside to yesterday's close. While momentum traders might be turned off by the stock's sharp plunge over the past several months, Drbul thinks Lululemon is too cheap to pass up given the strong U.S. and international expansion prospects it still has ahead.

Now what: According to Nomura, Lululemon's risk/reward trade-off is rather attractive at this point. "We believe the brand is strong and estimate the company can double revenues to [about $3 billion] over the next five to seven years," noted Drbul. "We expect this growth to come from: a recovery in comps, U.S. store expansion, e-commerce, and an expansion of international markets. We believe lululemon can nearly double its U.S. store base footprint to 300 stores (from 166 currently) over the next five to seven years; its international potential remains largely untapped." When you couple that bullish outlook with Lululemon's beaten-down stock price -- off about 40% from its 52-week high -- it's tough to disagree with Nomura's bullish stance.  

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Brian Pacampara has no position in any stocks mentioned. The Motley Fool recommends lululemon athletica. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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