Morgan Stanley cautious on Lululemon while BofA sees upside on stock

Ahead of its second-quarter results, Lululemon Athletica is seeing divergent analyst views, reflecting uncertainty around its growth trajectory. Morgan Stanley maintains an Equal-weight rating and cut its price target to $223, citing weakening North American sales, potential earnings miss, and anticipated full-year guidance trim due to tariffs. Conversely, Bank of America reiterated a Buy rating, lowering its price objective to $300 but viewing the stock's recent 40% decline as an attractive entry point, citing historically low valuation and potential for re-rating with solid Q2 sales growth and international market stabilization.

Analysis

Lululemon Athletica (LULU) faces significant investor uncertainty ahead of its second-quarter earnings, as reflected by divergent analyst commentary. Morgan Stanley expresses caution, maintaining an Equal-weight rating and cutting its price target to $223. This bearish stance is predicated on expectations of an earnings miss, with a specific forecast of $2.80 per share below consensus, driven by weakening sales trends in North America and a potential reduction in full-year guidance due to tariffs. In sharp contrast, Bank of America reiterates a Buy rating, and despite lowering its price objective to $300, it frames the stock's recent 40% decline as a compelling buying opportunity. BofA highlights Lululemon's valuation at a historically low sub-12x multiple on 2026 earnings estimates. The bank identifies potential catalysts for a stock re-rating, including achieving 7-8% sales growth in the second quarter and demonstrating stabilization in its international and China markets. The core of the debate centers on the company's ability to reignite growth in its once-dominant North American segment, the primary driver of the recent share price collapse.

Key Decisions for Investors

• Investors should closely monitor the upcoming Q2 earnings report for North American sales figures and any revision to full-year guidance, as these metrics will be critical in validating either the bearish or bullish thesis.
• For those with a higher risk appetite, the 40% stock price decline and historically low valuation may present an attractive entry point, contingent on the company demonstrating sales stabilization and margin resilience.
• Cautious investors should consider the fundamental risks highlighted by Morgan Stanley, specifically the slowdown in the core Americas market and the potential impact of tariffs, which could signal further downside if a negative inflection is confirmed.