Bernstein upgrades Lululemon rating, citing "normalizing" expectations

Investing.com -- Lululemon Athletica 's (NASDAQ: LULU) stock will be aided as expectations for the athletic apparel maker begin to account for its slowing growth trajectory, analysts at AllianceBernstein (NYSE: AB) said in a note on Tuesday raising their outlook for the stock.

The yogawear company reported last week that sales in its key North American market jumped by 11% in the second quarter thanks in part to demand from its affluent customer base. However, this rate was down from 17% in the first quarter and 29% in the prior year.

The Bernstein analysts predicted that this slowdown will continue. They argued that while this trend is neither "surprising or controversial," the market has "seemingly refused to recognize it," leading to big corrections over the past year after Lululemon's guidance failed to meet loftier estimates.

"The expectations [versus] reality gap has been our biggest concern with [Lululemon]," the AllianceBernstein analysts said. "[Its] growth is slowing, but the market was in denial."

However, they noted that "expectations are correcting," adding that this is helping to lessen the short-term valuation risk around the stock. Over the long term, the analysts said they "feel more comfortable taking an incrementally more positive stance" on its "sustainable growth story."

The AllianceBernstein analysts subsequently upgraded their rating of the stock to market-perform from underperform.

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