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Lululemon a 'great value': Retail analyst

Its yoga pants and workout tanks are priced at a premium, but Lululemon shares are still a bargain.

That's according to Guggenheim Securities analyst Howard Tubin, who on Tuesday named the athleticwear firm his best idea.

Pedestrians pass by a Lululemon store.
Scott Mlyn | CNBC
Pedestrians pass by a Lululemon store.

Tubin's conviction in the name is the latest sign of a turn in the company's business, after a series of sales declines that stemmed from a lack of newness in its assortment, and a series of public relations gaffes related to its highly publicized luon pant recall.

The analyst cited innovative and fashion-right product as key drivers behind momentum at the label, whose shares are up 56 percent over the past year. Tubin has an $80 price target and a "buy" rating on the stock.

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"We are once again seeing the product excitement and innovation that historically drove the business incorporated within the assortments," he wrote in a note to investors. "We would expect this 'newness' factor to increase throughout the year and contribute to an improving trend in earnings growth."

In addition to designing fashionable workout wear that consumers can wear outside of the gym, Tubin said that many of its items offer "great value" to consumers, as they serve more than one purpose. Its "Stuff Your Bra II" sports bra, for example, eliminates a shopper's need to purchase other accessories to hold keys or other essentials while exercising.

And although its median price tag for yoga pants sits at a 20 percent premium to a group of eight competitors including Nike and Athleta, its prices across its range of products are "not significantly greater than that of its competitors," he said.

In a note to investors late last month, Jefferies analyst Randal Konik sounded a more cautious note on the brand. Though an updated product mix and potential in its online, mens and kids categories should help continue the brand's momentum, delayed deliveries from the West Coast port strike could put the brand at risk for markdowns, he said. That, in turn, could pressure margins.

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Also last month the Consumer Product Safety Commission recalled 318,000 of the brand's women's tops due to a handful of injuries from the elastic drawstring. Sterne Agee CRT analyst Sam Poser, who has a "buy" rating and $77 price target on Lululemon, said the recall would not be material to its results.

"The recall may result in some negative press in the near term, but fundamentally Lululemon is strong and widening the gap versus competitors," he said.

Lululemon shares were slightly lower midday Tuesday, as the three major indexes declined.