Analyst Downgrades: American Eagle, Lululemon, Valeant

Analysts downwardly revised their ratings on American Eagle Outfitters (NYSE:AEO), Lululemon Athletica inc. (NASDAQ:LULU), and Valeant Pharmaceuticals Intl Inc (NYSE:VRX)

Nov 30, 2015 at 9:31 AM
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Analysts are weighing in on apparel retailers American Eagle Outfitters (NYSE:AEO) and Lululemon Athletica inc. (NASDAQ:LULU), as well as drugmaker Valeant Pharmaceuticals Intl Inc (NYSE:VRX). Here's a quick roundup of today's bearish brokerage notes on AEO, LULU, and VRX.

  • AEO is poised to dip 1% at the open, following a downgrade to "perform" from "outperform" and a price-target cut to $17 from $19 at Oppenheimer, with the brokerage firm citing valuation concerns. The stock has been faring well in 2015, advancing over 18% to trade at $16.40 -- though recent breakout attempts have fizzled at its 100-day moving average. Of course, the moment of truth arrives Wednesday evening, when American Eagle Outfitters will report third-quarter earnings. Short sellers are counting on a post-event swoon, as one-quarter of the stock's float is dedicated to short interest -- an amount that would take close to eight sessions to repurchase, at AEO's average daily volume.
  • LULU is gearing up for a 4.8% drop this morning, after FBR downgraded its opinion to "underperform" from "market perform," and lowered its price target to $42 from $55. Along similar lines, Canaccord Genuity trimmed its price target to $52 from $54. These bearish notes aren't exactly timely; though the stock is down about 6% in 2015, Lululemon Athletica inc. has bounced strongly from its mid-November annual low of $43.14, settling at $52.50 on Friday. Not everyone's betting against the shares. Based on data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), traders have been very bullish -- buying to open 3.53 calls for every put during the past 10 weeks. The corresponding call/put volume ratio ranks just 6 percentage points from a 52-week high.
  • While Bill Ackman may be confident in VRX, others on the Street are not, as the stock continues to reel in the wake of Citron Research's short-seller report. Today, CIBC piled on, cutting its price target by more than half to $90 from $200. There are plenty of brokerage firms that could follow suit, as 10 of 14 rate Valeant Pharmaceuticals Intl Inc a "buy" or better, with not a single "sell" opinion on the books. Plus, the stock's consensus 12-month price target of $168.91 represents a 94% premium to last week's settlement at $87.09. As noted, VRX has been swooning in recent months, giving up two-thirds of its value since notching a record high of $263.81 in early August.

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