Wells Fargo Upgrades Lululemon: 'Moving Past The Distractions'

Paul Lejuez of Wells Fargo upgraded shares of Lululemon (NASDAQ: LULU) on Tuesday to Outperform from Market Perform with a valuation range raised to $50 to $54 from a previous $38 to $42.

“Over the year, we have always viewed Lululemon as an attractive square foot growth story, but product/sourcing issues and management turnover made us less confident in the company's ability to execute its store growth plans,” Lejuez wrote in a note. The analyst adds that the company improved its supply chain and merchandise margins near an inflection point, management can re-focus on the underlying growth story.

Lejuez believes that the athletic category is “so strong” that Lululemon and its peers will benefit for years to come. The analyst notes that Lululemon remains “one of the nicer houses” within the space with a well-regarded brand despite “hiccups” in recent years.

Lejuez states that now is the right time for investors to buy shares of Lululemon. The analyst argues that the company won't miss earnings per share expectations with an all-time high number of showrooms and international growth plans not fully explained to investors.

Finally, Lejuez expects share repurchases to accelerate as the company is “a good business that is a stand-out.”