Option Trade
Lululemon Athletica inc. (NASDAQ:LULU) Calls
Tuesday, August 22, 2017

** OPTION TRADE: Buy the LULU SEPT 15 2017 60.000 CALL at approximately $3.00. Place a pre-determined sell at $6.00.

Note: No protective stop losses added -- but if you wish to do so make it $1.20.

Also Note: This is a recommendation and individual members can use their own discretion as to when to enter or exit!

You may also wish to read Stock Options Made Easy Trading Philosophy

by Ian Harvey   

Lululemon Athletica inc. (NASDAQ:LULU) is expected to report earnings on Thursday August 31, 2017 after the market closes. The report will be for the fiscal Quarter ending Jul 2017. Based on 15 analysts', the consensus EPS forecast for the quarter is $0.35. The reported EPS for the same quarter last year was $0.38.

On Monday, shares of athleisure giant Lululemon Athletica Inc. LULU rose, up about 2.5% in morning trading after Bank of America Merrill Lynch raised its rating on the company.

BofA upgraded Lulu shares to a Buy rating from Underperform, saying the retailer is taking away key sales from rivals like Nike NKE and Under Armour UAA . The firm also raised its price target for the company to $70 from $49, representing a 20% upside from Friday's close.

Analyst Rafe Jadrosich said Lululemon is "gaining share from saturated competitors. We believe weakness in Nike and Under Armour North America apparel sales creates share gain opportunity for lululemon," he wrote in a note to clients. "Nike and Under Armour have suffered from a lack of innovation, over-distribution in moderate channels, and heavy promotions."

Jadrosich cites some of Lulu's customer-favorite products like its Enlite bra, Nulux fabric, and Wunder Under fabric, and believes these will help drive sales growth going forward. He also predicts comparable store sales growth to increase 1%-5% in the July quarter from the negative 1% reported in the April quarter.

"Lululemon's fabric and product innovation appears robust, in our view," wrote Jadrosich. "We believe lulu will increase its assortment of Jacquard (specialized knitted and dyed nylon yarn that allows designers to form unique textured patterns), which will carry higher average selling prices and is difficult to replicate."

lululemon athletica inc. has a 1-year low of $47.26 and a 1-year high of $81.81. The company has a market cap of $8.06 billion, a PE ratio of 27.93 and a beta of 0.25. The stock’s 50 day moving average price is $60.41 and its 200-day moving average price is $58.07.

Influencing Factors

Year-to-date, LULU stock has fallen about 13%, and like many of its retail peers, it has been hit hard by the growth of e-commerce and changing consumer shopping habits. However, Lululemon has yet to fall into the discount trap, and the company rarely runs store promotions, a factor that sets them apart from other athletic retailers.

When customers visit a Lulu store, then, they are there for a reason. Lululemon has a very loyal base, and even though today, with almost all apparel brands boasting their own in-house athleisure collection, customers return to Lulu. Their logo still resonates with a large swath of exercising consumers, no matter the price.

Analysts and Hedge Funds Opinions

According to Zacks, “Lululemon stock has made notable recovery, outperforming the industry in the last three months. The company delivered top and bottom line beat in first-quarter fiscal 2017, which has considerably boosted stock price. Further, the company is all set to utilize its capabilities built in fiscal 2015 over the next five years. In fact, by 2020, the company aims to double its revenues to about $4 billion and more than double its earnings. Moreover, the company’s eCommerce growth initiatives and ivivva remodeling bode well. We note that the company’s eCommerce comps improved in the low-double digits range so far in the fiscal second-quarter. This led the company to provide solid comps guidance for the second quarter and fiscal 2017, reflecting further strengthening of eCommerce business.”

Several other analysts have also recently commented on the company…..

  • Barclays PLC set a $85.00 price target on shares of lululemon athletica inc. and gave the company a “buy” rating in a research report on Saturday, June 3rd.
  • Oppenheimer Holdings, Inc. set a $65.00 price target on shares of lululemon athletica inc. and gave the company a “buy” rating in a research report on Saturday, June 3rd.
  • Finally, Vetr raised shares of lululemon athletica inc. from a “hold” rating to a “buy” rating and set a $63.40 price target on the stock in a research report on Thursday, August 10th.

Four analysts have rated the stock with a sell rating, seventeen have issued a hold rating and twenty have assigned a buy rating to the company. The company has a consensus rating of “Buy” and a consensus price target of $65.50.

Several institutional investors have recently made changes to their positions in the stock…..

  • TB Alternative Assets Ltd. bought a new position in shares of lululemon during the second quarter. The firm bought 6,100 shares of the apparel retailer’s stock, valued at approximately $364,000.
  • Comerica Bank raised its stake in shares of lululemon athletica inc. by 61.7% in the fourth quarter. Comerica Bank now owns 11,052 shares of the apparel retailer’s stock worth $751,000 after buying an additional 4,218 shares during the period.
  • Quadrature Capital Ltd acquired a new stake in shares of lululemon athletica inc. during the fourth quarter worth $11,613,000.
  • Teachers Advisors LLC boosted its position in lululemon athletica inc. by 45.7% in the fourth quarter. Teachers Advisors LLC now owns 122,551 shares of the apparel retailer’s stock valued at $7,965,000 after buying an additional 38,418 shares in the last quarter.
  • Gulf International Bank UK Ltd boosted its position in lululemon athletica inc. by 2.3% in the first quarter. Gulf International Bank UK Ltd now owns 35,127 shares of the apparel retailer’s stock valued at $1,822,000 after buying an additional 780 shares in the last quarter.

In other lululemon athletica inc. news, Director Glenn Murphy acquired 97,728 shares of lululemon athletica inc. stock in a transaction dated Monday, June 26th.

Harvey’s Options Volatility Indicator

Summary

Lululemon, which is currently valued by the market at USD $7.95B, an EPS growth of 11.49% over the past year is nothing less than an astounding performance.

Therefore, based on the facts above, and Harvey’s Options Volatility Indicator, the following option trade is recommended…..

 

** OPTION TRADE: Buy the LULU SEPT 15 2017 60.000 CALL at approximately $3.00. Place a pre-determined sell at $6.00.

Note: No protective stop losses added -- but if you wish to do so make it $1.20.

 

”Success is simple. Do what's right, the right way, at the right time.”

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Options traders win because they are successful.





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