The news: Options traders have alerted us to more potential M&A activity. For insights we turn to Susquehanna Market Strategist, Stacey Gilbert.
On the heels of Sketcher’s $142 million bid for Heely’s I'm seeing increased interest in another specialty retailer, explains Gilbert. Specifically, I've noticed heavy call buying on Lululemon Athletica. There’s chatter that Nike could be interested in LULU.
The HLYS deal translates into an 11x multiple on trailing earnings. LULU is trading at around 40x trailing EPS right now. I think NKE would be interested in LULU as a brand, but you really think they'll pay a premium to the current valuation? Why would they pay more than 40x for LULU when their own stock is trading at 16x trailing? Wouldn't they be better off buying back their own stock? Unless they really believe in the growth of LULU. Thoughts?
100% top line growth with limited resources. With Nike distribution this would be cheap. Nike's PE is 20 LuLu is 40. Nike is 30B Lulu 1.5B. Lulu's sell through Nike's distribution network sales would go up 5x not even considering sysergy on distribution the PE could be 10. I think Nike could pay 3B or 50 a share and have this one work for them.