Analysts Cautious On Lululemon Athletica

Lululemon Athletica inc. (NASDAQ: LULU) beat third-quarter expectations by 10 percent recently, but a couple of analysts cautioned against chasing its shares in light of a disappointing outlook.

The apparel company is up 43 percent from June lows, and traded recently at $52.65, up 3.3 percent.

Mizuho's Betty Chen said sales growth is likely to slow while margins may continue to narrow in 2016 on lower profits on sales as well as high spending on expansion.

Chen maintained a Neutral rating on Lululemon but boosted her target 25 percent to $50 a share.

While results from the recent quarter may suggest "a turnaround is progressing," Deutsche Bank's David Weiner said heavy spending and less than stellar same-store sales growth leave him cautious.

Weiner maintained a Hold rating, but boosted his target 15 percent to $46 a share.

Yet CLSA's Barbara Wyckoff upgraded Lululemon to Buy, from Hold, with a $66 target.

Same-store sales growth of 3 percent suggest the brand is "regaining its luster" and the shares are trading in a trough relative to its earnings outlook, Wyckoff said.

"This is a good entry point" in light of continuing restructuring, Wyckoff said.

Lululemon appeared to flounder earlier this year in a battle with its billionaire founder Dennis Wilson, who buried the hatchet in August by selling half his 27 percent stake for $42 a share to the private equity firm Advent International.