Analyst Debunks Lululemon Buyout Chatter

Lululemon Athletica Inc. (NASDAQ: LULU) may feel cheap on a historical price-to-earnings (P/E) comparable analysis and after a huge stock drop, but the stock is still valued at a premium to the market. On top of that, the massive pullback does not indicate that management would accept any sort of fire sale bargain bin buyout from any public or private companies. So the buyout chatter that has been around is being debunked by one of the analysts who was a long-term bull of the company.

Sterne Agee analyst, Sam Poser, commented on Lululemon’s fresh stock volatility. He noted a Bloomberg report that cited a possible buyout by Adidas or VF Corp. (NYSE: VFC). Poser was one of the analysts who did not throw in the towel until just recently, and he has a Neutral rating on the stock.

The analyst noted that Lululemon is a retailer and both Adidas and VFC are wholesale companies in their essence, only with a small retail footprint. Poser’s belief remains that the value of the Lululemon brand comes from the combination of great service and great product, and an acquisition at this time would only further hurt the in-store experience and do more damage to the brand.

Poser said:

The report cites sell side reports that we believe were put in place to prop up positive outlooks for the stock. We do not believe that it would be wise for either company to consider acquiring Lululemon. … If the Lululemon brand was sold as a wholesale brand rather than through Lululemon stores, the retail price of the product would likely have to increase between 15% to 30% due to the pricing structure of the brand. … We do not believe that throwing M&A theories into the marketplace, without detailed thesis is responsible.

Lululemon shares were up about 2.8% at $39.78 in midday trading on Wednesday, and the 52-week trading range is $36.26 to $77.75.

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