MKM Names Lululemon Its Top Pick For 2018

Lululemon Athletica inc. LULU is is building momentum into 2018, according to MKM Partners. 

The Analyst

MKM Partners analyst Roxanne Meyer maintained a Buy on shares of Lululemon athletica and upped the price target from $81 to $89. Lululemon was also named MKM's top pick in 2018. 

The Thesis

The results of MKM Partners' 10th proprietary survey support a bullish view on Lululemon, with increased confidence in the holiday season and beyond, Meyer said in a note. (See Meyer's track record here.) 

The company's recent third-quarter results and fourth-quarter outlook show that a strong brand, focus on innovation and customer connection are lifting comp gains, the analyst said. 

Lululemon is likely to exceed comp and earnings targets, Meyer said. 

"Longer-term, we see earnings power potential from DTC growth, extended supply chain opportunities and SG&A leverage, and believe our high-end out-year estimates could prove conservative." 

Meyer named key takeaways from MKM's Lululemon survey: 

• The fourth quarter is off to a solid start, with men's faring well — but women's is inflecting.
• Holiday purchase intentions are pointing to gains in transactions and average dollar sales.
• Customers are more bullish on spending intentions over the next three to six months than on current spending.
• MKM sees long-term earnings power potential across its model and believes its high-end out year estimates could prove conservative.

MKM Partners raised its fourth quarter earnings per share estimate to the high end of the guidance range at $1.22. The firm also increased its 2018/19 estimates on the basis of a projection that the company can achieve a flat SG&A rate at the minimum.

The Price Action

Lululemon shares are up over 15 percent year-to-date.

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