Analyst Sees $40B Market Cap For Lululemon

Cowen believes Lululemon could be the next Nike, as it raised its price target on the stock to $250.

Assuming LULU can sustain an NKE-like free cash flow multiple, we see a path to a $40 billion market cap. We view LULU growth, durability and ROIC [return on invested capital] profile as most similar to NKE, Analyst John Kernan said in a note to clients on Tuesday (December 3).

Lululemons market cap is currently $29 billion, while Nikes is $146 billion. But as Cowen pointed out, Lululemons growing menswear and international divisions will boost sales, while its new streetwear-inspired Lab line and new self-care and footwear lines are expected to attract new customers. Its current customers are alsohighly loyal to the brand, noted Kernan.

Cowen now has an outperform rating on Lululemon, with the $250 target showing an 11 percent increase to where the stock currently trades.

We have confidence that new product, integrated marketing and online momentum combined with loyalty, a healthy high-end customer demographic and athleisure fashion trends will yield traffic, improving conversion and comps, Kernan said.

The company beat top- and bottom-line expectations in the second quarter and also raised its full-year guidance. In addition, its shareshave risen 84 percent this year, while rivals Nike and Under Armour have gained 25 percent and 3 percent, respectively.

In July, Lululemon revealed that it was opening a massive store in Chicago. The 20,000-square-foot location, which is located in the citys Lincoln Park neighborhood, features workout studios, a restaurant and so-called one-of-a-kind merchandise. Its first floor showcases womens attire, such as the companys famous leggings along with yoga pants, sports bras and accessories, while its second level features mens merchandise such as ABC pants, sweat-wicking tops and underwear. In addition, the second floor has three studios for daily classes.

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