Analyst Note| David Swartz |
As it has done consistently over the past three years, narrow-moat Lululemon outperformed analysts’ expectations in 2021’s first quarter and lifted its guidance. Apart from the firm’s own momentum, conditions were exceptionally good for the United States apparel industry in the quarter as government stimulus, vaccinations, and limited discounting boosted sales and margins. Thus, we expect to raise our $166 per share fair value estimate on Lululemon by a high-single-digit percentage. However, at a P/E of about 45 times on 2021 earnings, we view its shares (little changed in post-market trading) as very overvalued.