LULU Stock Study (4-25-23)

I recently did a stock study on Lululemon Athletica Inc. (LULU) with a closing price of $381.37.

M* writes:

     > Lululemon Athletica Inc. designs, distributes, and markets
     > athletic apparel, footwear, and accessories for women, men,
     > and girls. Lululemon offers pants, shorts, tops, and jackets
     > for both leisure and athletic activities such as yoga and
     > running. The company also sells fitness accessories, such
     > as bags, yoga mats, and equipment.

This medium-size company has grown sales and EPS at rates of 19.2% and 19.4% per year since 2013. Lines are mostly up [EPS dipped in ’14, ’17, ’20, and ’22 (N.B.: Both CFRA and Value Line report earnings growth in this most recently completed FY)], straight, and parallel. PTPM over the last 10 years leads peer and industry averages despite falling from 25.0% in ’13 to 16.4% in ’22 with a last-5-year average of 20.1%.

ROE over the last 10 years is roughly equal to the industry averages while outpacing peers, ranging from 16.8% (’17) to 39.0% (’19) and posting a last-5-year average of 32.9%. Debt-to-Capital was zero through 2018. As the company maintains zero long-term debt, this remains much lower than peer and industry averages with a last-5-year average of 20.2% (leases).

I forecast long-term annualized sales growth of 10% based on the following:

• CNN Business projects 14.8% YOY and 13.9% per year for ’23 (FY actually ends in Jan) and ’22-’24, respectively (based on 26 analysts).
• YF projects YOY 15.5% and 13.4% for ’24 and ’25, respectively (27 analysts).
• Zacks projects YOY 15.7% and 11.9% per year for ’24 and ’25, respectively (12).
• Value Line projects 11.5% annualized growth from ’22-’27.
• CFRA projects 15.0% YOY and 15.1% per year for ’24 and ’23-’25, respectively.
• M* gives a 2-year ACE of 12.5% annualized growth while projecting 11.0% for the next 10 years in its analyst note.

I am forecasting just below the range.

I forecast long-term annualized EPS growth of 13% based on the following:

• CNN Business projects 14.7% YOY and 15.4% per year for ’23 (FY actually ends in Jan) and ’22-’24, respectively (based on 27 analysts), along with 5-year annualized growth of 14.9%.
• MarketWatch projects annualized growth of 16.4% and 16.2% for ’23-’25 and ’23-’26 (33 analysts).
• Nasdaq.com projects annualized growth of 12.7% and 14.0% for ’24-’26 and ’24-’27, respectively [15, 5, and 1 analyst(s) for ’24, ’26, and ’27].
• Seeking Alpha projects 4-year annualized growth of 16.8%.
• YF projects YOY 15.3% and 15.8% for ’24 and ’25, respectively (26), along with 5-year annualized growth of 16.7%.
• Zacks projects YOY 13.9% and 16.0% for ’24 and ’25, respectively (16), along with 5-year annualized growth of 20.0%.
• Value Line projects 13.5% annualized growth from ’22-’27.
• CFRA projects 14.2% YOY and 16.9% per year for ’23 and ’22-’24, along with a 3-year projected CAGR of 18.0%.
• M* projects long-term annualized growth of 18.5%.

I am forecasting below the long-term-estimate range (mean of six: 16.7%).

My Forecast High P/E is 36. High P/E has ranged from 37 (’15 and ’16) to 88.9 (upside outlier in ’20) over the last 10 years. The last 5-year average excluding ’20 is 55.5 and trending higher. I am forecasting conservatively just below the range.

My Forecast Low P/E is 30. Low P/E has ranged from 20.7 (’18) to 37.7 (’22) over the last 10 years. The last 5-year average is 30.3. I am forecasting relatively high because anything less makes for an unreasonable Low Stock Price Forecast (LSPF).

My LSPF is the default value of $200.40. This is 47.5% less than the previous close and 20.3% less than the 52-week low.

These inputs land LULU in the HOLD zone with an U/D ratio of 0.3. The Total Annualized Return (TAR) is 3.0%.

PAR (using Forecast Average—not High—P/E) is 1.3%. If a healthy margin of safety (MOS) anchors this study, then I could proceed based on TAR instead. Even this is less than what T-bills are paying right now, however.

To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on 394 studies done in the past 90 days (72 total outliers and my study excluded), averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, and Forecast Low P/E are 15.0%, 16.0%, 39.3, and 26.5. I am lower on all but Forecast Low P/E (see explanation above). Value Line projects a future average annual P/E of 31.0, which is lower than MS (32.9) and lower than me (33.0). MOS is hardly discernable in the current study.

With regard to other data, MS high and low EPS are $16.76/share and $8.17/share compared to my $12.31 and $6.68. My high EPS is lower due to a lower forecast growth rate, but I am challenged to explain the latter (see N.B. above). MS Low Stock Price Forecast is $219.30 (9.4% higher than mine). This is consistent with the default $8.17 * 26.5 = $216.50.

From this analyst’s perspective, being up 18.9% in the last six months has this stock overcooked. I would look to re-evaluate under $261/share.