Lululemon Stock Lifted by Home Workout Acquisition

The equity is up 71% year-over-year

by Fernanda Horner

Published on Jun 30, 2020 at 11:06 AM
Updated on Jun 30, 2020 at 11:15 AM

The shares of Lululemon Athletica Inc (NASDAQ: LULU) are up 4.6% at $308.01 this morning, after the athletic apparel retailer announced late Monday night the acquisition of home fitness company Mirror for $500 million. The move allows Lululemon to cash in on booming demand for home-workout classes and equipment, which was spurred by coronavirus lockdowns. As a result of the incoming acquisition, LULU earned a price-target hike from Cowen and Company to $335 from $311. 

The equity has staged an impressive comeback since dropping to its mid-March, two-year lows near the $128 level, culminating in an all-time-high of $324.76 on June 10. Though the shares pulled back some after that peak, their 40-day moving average contained the damage. Longer-term, LULU now sports a 71% year-over-year lead. 

Analysts were majorly optimistic toward the equity coming into today, with 18 of the 27 in coverage calling it a "buy" or better, and the remaining nine calling it a "hold." Meanwhile, the consensus 12-month price target of $320.42 is only a 3.2% premium to current levels, suggesting there is room for more price-target hikes toward the athleisure retailer.

That sentiment is echoed in the options pits today, where the appetite for calls is high. At last check, over 38,000 calls have changed hands, six times the average intraday amount and over three times the number of puts traded. Leading the charge is the weekly 7/2 320-strike call, followed closely by the 315-strike call contract in the same series, with new positions being opened at each.

What's more, Lululemon stock's Schaeffer's Volatility Scorecard (SVS) sits high at 79 out of 100, showing that the equity has tended to exceed option traders' volatility expectations during the past year, a good thing for option buyers.


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