Photo: Lululemon, Flickr
This morning, Goldman Sachs has put both Lululemon and Chipotle on its “Conviction Buy List.”Both of these stocks have, at times, been pretty big, fast-growing momentum darlings.
First on Lululemon, says analyst Michelle Tan:
We add Buy-rated LULU to the Americas Conviction List with a $64, six-month price target (37% upside), as (1) we believe LULU still offers one of the most compelling growth stories in retail, with continuing brand momentum (evidenced by strong yoy growth in Google trends this Holiday), sector-leading annual sales growth of over 30%, and substantial runway still ahead, and (2) we believe controversy surrounding implications of higher inventory has created an more attractive entry point, with upside to consensus EPS and to LULU’s current P/E, which at 29X our 2012E EPS reflect a sharp discount to LULU’s five-year average (38X) and PEs of best-in-class growth peers (up to 40X).
And on Chipotle, the case from Michael Kelter:
We add CMG to the Americas Conviction List as we expect 35-40% EPS growth in 2012; our $9.39 2012E EPS is well ahead of the $8.63 consensus. We expect upside to both SSS and profit margins, as lower food costs work their way through the P&L and fixed cost leverage continues. We see a low likelihood that multiple compression will serve as an offset given (1) CMG’s early stage in its growth life cycle at 1,200 units out of a 3,000-4,000 unit potential, (2) the magnitude of potential EPS upside, and (3) the historical precedent set by prior “hyper-growth” restaurant stocks.