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Lululemon, Ulta Valuations Send Nomura To The Sidelines

Brett Hershman

Nomura is moving to the sidelines on Lululemon Athletica inc. (NASDAQ: LULU) and Ulta Beauty Inc (NASDAQ: ULTA).

The Analyst

Analyst Simeon Siegel downgraded Ulta from Buy to Neutral and raised the price target from $305 to $311.

Siegel owngraded Lululemon from Buy to Neutral and raised the price target from $140 to $157.

The Thesis

Ulta and Lululemon are two of the best stories in retail, but their share prices reflect it, Siegel said in a Tuesday note.

“We continue to favor both business models and expect absolute and relative fundamental outperformance, but from a stock perspective believe upside is capped," the analyst said. 


Nomura expects Ulta to continue to post among the best comps in retail, but after recovering 60 percent against its 52-week low, its valuation now reflects that projection, Siegel said. 

“Absent the introduction of an international story, at $7 billion in revenue, conversations around addressable market size should be considered." 

All checks suggest strong trends, Siegel said, and he is not calling for a quarterly miss. With shares meaningfully up, “we choose to step to the sidelines at present given what we view as a shift in risk-reward," he said. 


A similar story is found at Lululemon, where ongoing strength and positive current checks are reflected in a recent 94-percent share price rally against its 52-week low, Siegel said. 

“LULU’s comps have been industry-leading, with channel checks leading us to believe the trend will likely continue, and we expect the company to successfully lap the string of difficult compares ahead, albeit at declining rates," the analyst said. 

Nomura has every expectation that Lululemon will lift its $4-billion revenue target, but this is now a consensus belief that's baked into the share price, Siegel said. 

“Further, we remain of the view that, without wholesale exposure, North American DTC-only brands ultimately cap at $3 billion in sales, the very value baked into LULU’s guidance. As such, although we see impressive whitespace for further international growth above and beyond the implied $1 billion in guidance, we would view any increased internal North American expectations with caution." 

Price Action:

Lululemon shares were up 0.68 percent at $148.58 at the time of publication Wednesday, while Ulta was 0.29-percent higher at $305.54.

Related Links:

Piper Jaffray Upgrades Ulta; Survey Reveals Teens Spending More On Cosmetics

Guggenheim Survey Of Ulta Consumers Paints Bullish Picture

Photo by Michael Rivera/Wikimedia. 

Latest Ratings for LULU

Date Firm Action From To
Feb 2019 Nomura Downgrades Buy Neutral
Jan 2019 Buckingham Upgrades Neutral Buy
Jan 2019 Wells Fargo Maintains Outperform Outperform

View More Analyst Ratings for LULU
View the Latest Analyst Ratings

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