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lululemon vs. Under Armour: Which Stock Is Set For a Good Run?

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·6 min read
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The demand for athleisure wear or athletic clothing that can transition more easily between leisure and exercise has seen an upward trend. This trend was pronounced during the pandemic, as more people worked from home and wanted to trim down their wardrobes.

According to a Linchpin report, the athletic wear market in the U.S. is expected to be worth $69.2 billion this year and is likely to account for 36% of global athletic wear sales.

Using the TipRanks Stock Comparison tool, let’s compare two athletic wear companies, lululemon Athletica and Under Armour, and see how Wall Street analysts feel about these stocks.

I am neutral about both stocks listed in this article.

lululemon Athletica (LULU)

lululemon is a designer, distributor, and retailer of athletic apparel and accessories. The company primarily conducts business through two channels: company-operated stores and a direct-to-consumer e-commerce website, lululemon.com.

LULU's shares shot up 13% in pre-market trading as the company delivered an earnings beat in the second quarter and consequently raised its guidance. LULU posted net revenues of $1.5 billion, a jump of 61% year-over-year and beating consensus estimates of $1.33 billion.

The company reported adjusted diluted earnings of $1.65 per share versus $0.74 per share in the same quarter last year. Analysts were expecting adjusted earnings of $1.18 per share.

Meghan Frank, lululemon Athletica’s CFO stated, “Our performance in Q2 was driven by a strong response to our product offering, improving productivity in our stores, and sustained strength in e-commerce. While we continue to navigate the COVID-19 environment, including supply chain headwinds, I'm excited with our momentum as we head into the second half of the year and pleased to be able to increase our guidance.”

The company has projected net revenues to vary between $1.4 billion to $1.43 billion for Q3 and for FY21, to be in the range of $6.19 billion to $6.26 billion. Adjusted diluted EPS is expected to come in between $1.33 to $1.38 in Q3 and for FY21, it is anticipated to range between $7.38 to $7.48. (See lululemon stock chart on TipRanks)

Guggenheim analyst Robert Drbul remained impressed with the growth shown by the company’s e-commerce business. Indeed, LULU’s management stated on its Q2 earnings call that “Comps [comparable sales] increased 4% on top of the 157% increase last year.”

The analyst raised the price target from $450 to $475 (24.7% upside) and reiterated a Buy on the stock following the Q2 results.

The analyst expects that digital penetration will make up around 50% of LULU’s total revenues in 2021, “up from ~30% in 2019, with likely improved margins as the company benefits from heavy, pulled-forward digital-related investments.”

Furthermore, Drbul sees “ample runway for growth in Men's, digital, and Int'l, while LULU continues to deliver strong growth in its 'core' (Women's, stores, North America).”

Indeed, at the company’s earnings call, LULU’s management said that the company’s stores are on a rebound, generating a revenue Compounded Annual Growth Rate (CAGR) of 9% over a period of two years.

Lululemon’s CEO, Calvin McDonald added, “This year, we will likely achieve the goal we set to double our men’s business and we remain on track to quadruple our international business by 2023 if not sooner.”

According to analyst Drbul, other key positives for the stock include no long-term debt and limited seasonality factor for LULU’s products.

Turning to the rest of the Street, analysts are bullish about lululemon, with a Strong Buy consensus rating, based on 10 Buys and 2 Holds.

The average lululemon price target of $456.58 implies 19.8% upside potential from current levels.

Under Armour (UAA)

Under Armour, a manufacturer of athletic apparel, footwear, and accessories, also delivered blowout second-quarter results. The company’s revenues soared 91% year-over-year to $1.35 billion and surpassed the Street’s estimate of $1.21 billion.

Adjusted earnings came in at $0.24 per share, significantly outpacing analysts’ estimates of $0.05 per share. (See Under Armour stock chart on TipRanks)

Under Armour generates revenues from the sales of its products through wholesalers, distributors, and the direct-to-consumer sales channel that includes its brand and factory house stores and e-commerce websites.

Under Armour President and CEO Patrik Frisk said, “We are very pleased with Under Armour's better than expected second-quarter results, which reflect solid progress compared to both 2020 and 2019. Given the continued momentum, we're raising our full-year outlook, which puts us on track to achieving a solid performance in 2021.”

In 2021, UAA expects revenues to grow in the low twenties percentage, driven by a growth rate in the low twenties for sales in North America and a rate of increase in the mid-thirties percentage for the company’s international business.

UAA anticipates adjusted diluted EPS to range between $0.50 to $0.52 versus its earlier expectation of a range between $0.28 to $0.30 per share in FY21.

Following the stellar Q2 results, J.P. Morgan analyst Matthew R. Boss upgraded the stock from a Hold to a Buy and raised the price target from $25 to $30 (35.1% upside). The analyst pointed out the key positives for the stock, including the top-line growth rate of 12% in the first half of the year versus the first half of FY19 and an expansion of 550 basis points in the company’s gross profit margin in H1 of FY21.

The analyst also said that he expects the global sportswear market to grow at a CAGR of 8% between 2021 to 2025, which could benefit the company. Furthermore, Boss pointed out that Nike (NKE), the largest player in the sportswear market, continues to divest from wholesale accounts, “strengthening the full price backdrop.”

In contrast, BTIG analyst Camilo Lyon maintained a Sell with a price target of $15 (32.4% downside) on the stock, following the Q2 results. While Lyon opined that the second quarter was a good one for the company, he said that “the key negative was e-commerce contraction of -18%, which in our view is not an indicator of brand strength.”

The analyst added, “We applaud the profit improvements the company has engineered which look durable; however, we continue to have doubts about the brand's long term sustainable growth trajectory in a post-COVID/normalized inventory world.”

Turning to the rest of the Street, analysts are cautiously optimistic about Under Armour, with a Moderate Buy consensus rating, based on 9 Buys, 6 Holds, and 1 Sell.

The average Under Armour price target of $29.47 implies 32.8% upside potential from current levels.

Bottom Line

While analysts are bullish about LULU, they are cautiously optimistic about Under Armour. Based on the upside potential over the next 12 months, Under Armour seems to be a better Buy.

Disclosure: At the time of publication, Shrilekha Pethe did not have a position in any of the securities mentioned in this article​.Disclaimer: The information contained in this article represents the views and opinion of the writer only, and not the views or opinion of Tipranks or its affiliates, and should be considered for informational purposes only. Tipranks makes no warranties about the completeness, accuracy or reliability of such information. Nothing in this article should be taken as a recommendation or solicitation to purchase or sell securities. Nothing in the article constitutes legal, professional, investment and/or financial advice and/or takes into account the specific needs and/or requirements of an individual, nor does any information in the article constitute a comprehensive or complete statement of the matters or subject discussed therein. Tipranks and its affiliates disclaim all liability or responsibility with respect to the content of the article, and any action taken upon the information in the article is at your own and sole risk. The link to this article does not constitute an endorsement or recommendation by Tipranks or its affiliates. Past performance is not indicative of future results, prices or performance.