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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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.