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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: Shares of lululemon athletica (NASDAQ: LULU ) gained about 2% this morning after Wedbush upgraded the yoga-gear retailer from neutral to outperform.
So what: Along with the upgrade, analyst Corinna Freedman boosted her price target to $64 (from $54), representing about 20% worth of upside to Friday's close. So while momentum traders might be turned off by Lululemon's decline over the past several months, Freedman's call could reflect a growing sense on Wall Street that its valuation is becoming too cheap to pass up.
Now what: Wedbush maintained its above-guide earnings-per-share estimates for Lululemon of $1.92 in 2014 and $2.20 in 2015. "We anticipate that the shares will benefit from improving weather as store traffic improves from trough levels and that the Analyst Day in mid-April will be catalyst with a focus on new product initiatives," said Freedman. "We further anticipate additional capsule product to drive interest post-Analyst Day and anticipate the company's recently issued guidance of $1.80-1.90 to prove beatable providing confidence in the new CEO's regime." When you couple that upbeat outlook with Lululemon's beaten-down stock price, it's tough to disagree with Wedbush's bullishness.
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