Narrow-Moat Lululemon Slides Into 2023 With Strong Momentum; Shares Overvalued

Lululemon’s fourth-quarter results for 2022 exceeded its preliminary announcement and our expectations (see our Jan. 9 note). Moreover, the firm offered guidance of 15% sales growth and $11.50-$11.72 in EPS (excluding share repurchases) for 2023, close to our 14% and $11.59 respective estimates but, given its momentum, likely conservative. Thus, we expect to lift our near-term forecast, leading to a mid-single-digit percentage increase in our $233 per share fair value estimate. However, we view Lululemon’s shares, up 13% in postmarket trading, as overvalued, at roughly 30 times forward earnings. We rate the firm as having a narrow moat and view it as a leader in the athleisure space, but believe its valuation does not fully reflect the threat of competition.