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.
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.
“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."
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.
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Photo by Michael Rivera/Wikimedia.
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