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Buy Lululemon as the athleisure brand is well-positioned to ride a recession, Morgan Stanley says

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While the macro environment is looking murky for many apparel retailers, Lululemon is better-positioned than some of its peers to weather the storm, Morgan Stanley said Thursday. Analyst Kimberly Greenberger upgraded the stock to overweight from equal weight, saying in a note to clients that risks are already priced into the athleisure brand. She added that the stock is trading at a discount relative to its historical valuation. “We have long been structurally bullish on the business, & had been looking for valuation pullbacks as potential opportunities to become more constructive,” Greenberger said. “Current levels offer an attractive entry point, so we move off the sidelines & recommend long-term oriented investors take another look at this quality asset on sale.” What makes the stock most attractive is that it’s trading at a huge sale following a 33.4% pullback in shares since the start of the year, she said. Meanwhile, the company’s sway toward higher-end consumers cushions it from inflation that’s eating into many consumers’ pockets. Greenberger noted this very trend makes the stock more resilient and gives it pricing power in the current macroenvironment. Shares of Lululemon have pulled back more than 46% from an all-time high in November 2021 and are trading down 26.5% this month. The stock was among the pandemic beneficiaries that prospered as consumers shopped from home and search for comfortable apparel. That trend toward casual fashion will likely continue, Greenberger said. To be sure, Greenberger cut her price target on Lululemon to $303 per share from $339. That new target is still 16.2% above Wednesday’s close. — CNBC’s Michael Bloom contributed reporting

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