Analyst Take: Is Lululemon Really Worth $91 Per Share?

Lululemon Athletica Inc. (NASDAQ: LULU) is trading higher this morning after Canaccord Genuity initiated coverage with a Buy rating with a price target of $91 per share. Today's gain comes from a blended average of 35-times the firm's 2013 price-to-earnings ratio as well as 25 times it's enterprise value over EBITDA.

Canaccord's Camilo Lyon said, "We believe LULU is evolving from an athletic brand with its roots in yoga to a lifestyle brand that is marrying form and function. To that end, the company has had issues in keeping pace with demand. Our supply chain checks suggest capacity in 2013 will expand and as a result traffic and conversion should improve, resulting in a reacceleration of comparable growth."

The report suggests that key manufacturers are expanding production lines dedicated to LULU garments in 2013. After years of under-production, the call today suggests that higher production capacity could result in an incremental $0.09 to $0.18 in earnings per share out in 2013. Growth in ecommerce is also set to ramp up and Lululemon can now ship to 51 new countries. This should boost its international brand presence and should serve as a leading indicator for new store openings.

Lyon sees more stores and said, "With just 200 total stores today, we believe LULU can double its US sq. ft., while growth abroad is in its infancy."

As far as the $91 price target, this compares to a share price of $72.88 today and a 52-week range of $42.75 to $81.09. Thomson Reuters has a consensus price target of $81.29 and the highest price target is listed as $100 for this high growth yoga and sporting goods company.

It should be noted that the 1.5% gain today gives a market cap of roughly $10.5 billion.

JON C. OGG

Filed under: 24/7 Wall St. Wire, Analyst Calls, Apparel, Retail Tagged: LULU