RBC Raises Lululemon Target Ahead of Quarterly Results Tuesday

Will Lululemon Athletica Inc.’s (LULU) first set of quarterly results as a public company live up to a share price that has doubled since its IPO in July?

Analyst Tal Woolley of RBC Capital Markets believes the company will report a solid second quarter Tuesday and that the trendy Vancouver yoga retailer still has ample room for growth. He raised his target price to C$41 from C$23 and rates the shares at “outperform.”

“We have taken a longer term approach to the valuation and our target price,” he said in a note to clients. Part of that has meant recognizing that assessing the rapidly expanding Lululemon on a standard price to earnings ratio alongside its industry peers results in a grossly inflated valuation.

Lululemon will likely have 22 to 25 new stores in operation by the end of the year, Mr. Wooley estimates. He has switched to a discounted cash flow analysis, which derives current value from an estimate of future cash flows, to arrive at the new target price.