- Nike's valuation provides a map for Lululemon to reach a $40 billion valuation, Cowen said in a note to clients Tuesday.
- "Assuming LULU can sustain a NKE-like free cash flow multiple — we see a path to a $40B market cap. We view LULU growth, durability and ROIC [return on invested capital] profile as most similar to NKE," analyst John Kernan said.
- The firm has an outperform rating on LULU, and raised its target on the stock to $250 based on e-commerce momentum as well as growth in the company's menswear and international divisions.
- Shares of Lululemon have surged 85% this year, far outpacing the S&P 500's 24% rise.
The firm said Nike's valuation provides a map for Lululemon's future, and that when applying Nike's multiple to Lululemon's financial metrics and growth opportunities, there's a path toward a $40 billion market cap, a $300-plus stock price and $1 billion in annual free cash flow.
Lululemon's market cap is currently $29 billion, while Nike's is $146 billion.
"Assuming LULU can sustain a NKE-like free cash flow multiple — we see a path to a $40B market cap. We view LULU growth, durability and ROIC profile as most similar to NKE," the firm's analysts lead by John Kernan said in a note to clients Tuesday.
The firm has an outperform rating on the company, and the $250 target represents an 11% upside to where the stock currently trades.
Cowen said that the company's growing menswear and international divisions will drive sales, while also noting that consumers are "highly loyal to the brand." Additionally, Lululemon's new streetwear-inspired Lab line should attract new customers, and the new self-care and footwear lines represent additional opportunities for brand expansion.
"We have confidence that new product, integrated marketing, and online momentum combined with loyalty, a healthy high-end customer demographic, and athleisure fashion trends will yield traffic, improving conversion, and comps," Kernan said.
Lululemon beat top and bottom line expectations when it reported second quarter results in September, and the company also raised its full-year guidance based on strength in menswear and online sales. The company is expected to report third quarter results on December 11.
Shares of Lululemon have surged 84% this year. By comparison, shares of competitors Nike and Under Armour have gained 25%, and 3%, respectively.
- CNBC's Michael Bloom contributed reporting.