Cowen managing director John Kernan says this athletic-wear brand is headed for a much higher market cap.
Lululemon (NASDAQ: LULU) shares have been on fire this year, with shares surging 85% year-to-date.
And now Cowen managing director John Kernan has hiked his price target on the yoga-wear maker to $250—indicating roughly 11% upside from here—and reiterated his Outperform rating on the stock, saying it’s on its way to becoming the next Nike (NYSE: NKE).
“Assuming LULU can sustain a NKE-like free cash flow multiple – we see a path to a $40B market cap,” Kernan wrote in a note. “We view LULU growth, durability and ROIC (return on invested capital) profile as most similar to NKE.”
Lululemon currently has a market cap of $29 billion, so it has got a ways to go to reach that $40 billion valuation Kernan is eyeing.
But the firm says Nike’s valuation can provide a map for Lululemon’s future. By applying Nike’s multiple to Lululemon’s financial metrics and growth opportunities, Kernan says there’s a path toward that $40 billion market cap, a $300-plus stock price, and $1 billion in free cash flow.
Cowen noted Lululemon’s growing menswear and international divisions, which will drive sales, and also pointed out that customers are “highly loyal to the brand.”
The company’s new Lab streetwear-inspired line should attract new customers to stores, while the new self-care and footwear lines present additional opportunities for growth.
Lululemon unveiled is new five-year growth plan earlier this year at its analyst day. The company plans to double men’s and digital sales, and quadruple international sales by 2023.
“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 wrote.
Cowen’s Kernan isn’t the only Lululemon bull on Wall Street.
Barclays analyst Adrienne Yih initiated coverage of the stock last week, giving shares an Overweight rating and a price target of $257 – 14% higher than the current price.
Yih noted momentum in both e-commerce and in-store, as well as the brand’s “resonance” with young shoppers. According to Yih, this should “drive double-digit top-line growth and high-teens EPS growth.”