Lululemon's Stock Bounces After Analyst Recommends Investors 'build Positions'

By Tomi KilgoreMarketWatch Pulse

Lululemon Athletica Inc.'s stock climbed 1.1% in premarket trade Friday, bouncing from a sharp selloff in the previous session, after the yoga-gear seller was upgraded at Robert W. Baird & Co., which cited "compelling" valuation at current levels. Analyst Mark Altschwager raised his rating to outperform, after being at neutral for the past 15 months. Meanwhile, he cut his stock price target to $69, which is 29% above Thursday's closing price of $53.54, from $73. On Thursday, the company beat fiscal second-quarter profit and sales expectations, and raised its full-year earnings outlook, but the stock plunged 16% to a nine-month low on concerns over a surge in inventory levels and disappointing gross margin. Altschwager said he believes inventory issues will correct during the second half of the year and gross margins could bottom in the fourth quarter. Coupled with encouraging sales momentum and product innovation, he said the pullback in the stock produced a "compelling" risk-versus-reward profile at current levels. "We believe investors should use near-term volatility to build positions," Altschwager wrote in a note to clients. The stock has lose 4% year to date through Thursday, while the S&P 500 has dropped 5.2%.

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