Lululemon shares move higher after upgrade

Is it time for Lululemon to come out of its downward dog, and strike a warrior pose, fighting back against a rough 2013 that led to its stock price being slashed by 25 percent?

Oppenheimer thinks so. On Tuesday, the firm upgraded its rating on the athletic-wear brand from "perform" to "outperform," and raised its 12- to 18-month price target to $63. Lululemon shares on Tuesday closed modestly higher at $51.42.

Lululemon clothing on display in Pasadena, Calif.
Getty Images

"While we could be early (depends on comp trajectory), Lululemon is one of the most controversial stocks in retail, and we believe brand equity remains intact," Oppenheimer wrote in a research note. "After self-inflicted [issues in] 2013, there should be levers to accelerate top- and bottom-line growth, driven by double-digit square footage growth, double-digit growth online and margin recovery over time."

(Read more: Lululemon may learn a new move: The buyback)

Lululemon's reputation was tarnished last year following the March recall of its luon yoga pants, which were widely reported to pill and become sheer. The company's struggles became worse after a highly publicized interview with founder and former Chairman Chip Wilson, who told Bloomberg that the pants weren't meant for some women's bodies. Wilson resigned from the company's board in December.

Paired with increased competition from brands like Gap's Athleta, which sells its athletic wear at about a 13 percent discount to Lululemon, Oppenheimer said the company is lapping "significant disruption to business," and has the potential to increase its domestic store count by 100 to 150 stores over the next few years.

(Read more: Don't put too much stock in retail earnings)

"Besides store growth, new categories represent a significant opportunity in North America as Lululemon uses its brand equity to enter adjacent fitness markets," the note said.

Where LULU goes next
Where LULU goes next

But Belus Capital Advisors analyst Brian Sozzi sounded a more bearish note. He called attention to yet another way Lululemon is being "sneak attacked" by Athleta—its broad variety of workout classes, which range from yoga to kickboxing. Lululemon's in-store workout classes focus solely on yoga.

The need for a compelling in-store experience is something that has been brought to the forefront by many retail experts over the past few months. They say companies need to bring exciting offerings to their brick-and-mortar stores to combat the consumer shift to online shopping.

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"Athleta's scheduled class differentiation keeps its stores exciting," Sozzi wrote. "Most importantly, it brings in consistent traffic of folks with likely different personal preferences, meaning the company has the opportunity to show that its products are more versatile compared to Lululemon."

"More versatility, more value in the mind of the consumer," he said.

—By CNBC's Krystina Gustafson. Follow her on Twitter @KrystinaGustafs.