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Analyst predicts Lululemon earnings will be surprisingly good

File photo from 2010 of a Lululemon clothing store in Vancouver.

LAURA LEYSHON/The Globe and Mail

Inside the Market's roundup of some of today's key analyst actions

Canaccord Genuity analyst Camilo Lyon thinks Lululemon Athletica Inc. is going to have some good news for investors Thursday as it releases fiscal fourth-quarter results.

Lululemon provided preliminary results for the quarter, which ended Feb. 3, in mid-January. Even though they came in at the high end of the company's earlier guidance, the stock price came under pressure because same-store sales numbers fell short of lofty analyst expectations.

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Mr. Lyon thinks the trendy sportswear retailer will be able to post "a modest upside surprise" to the pre-released earnings per share guidance of 74 cents, as well as to its sales expectations, largely because of gift card redemptions.

Gift cards are counted as sales only after being redeemed, making it difficult to forecast revenues from the segment in advance. Lululemon also only recently made it possible for consumers to buy the cards online.

"By our math, gift card redemption could add about 1.6 per cent to comparable (sales) in the fourth quarter, assuming a 40 per cent redemption rate and $50-million of total gift card sales," Mr. Lyon said in a research note.

He expects this to accelerate in the first quarter of this year, which started Feb. 4, with cards adding 3.1 per cent to comparable sales in the period.

"We believe demand for LULU gear has not ebbed as evidenced by limited discounting and above-plan fourth-quarter gross margins," he said.

"Our work delving into the supply chain suggests LULU is making a concerted effort at improving its conversion by meeting more of its in-store demand with higher rates of product availability, thereby driving incremental comp gains," he added.

Target: Mr. Lyon reiterated a $91 (U.S.) price target and a "buy" rating. That's much higher than the average analyst target, according to Bloomberg, of $79.94.

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After lingering in the $70s for the last three years, and underperforming the S&P 500 by 15 per cent, Boeing Co. has finally broken out past the $80 level, noted RBC Dominion Securities analyst Robert Stallard.

"We think the stock can continue to move higher as investors look for lower valued laggards in the rising equity market, while progress on the 787 battery could help sentiment," he commented.

Although it is not yet known when its 787 Dreamliner will return to service, Boeing's forecast for 787 deliveries for this year had been conservative, so delays may not materially impact 2013 guidance, he added.

Target: Mr. Stallard raised his price target to $94 (U.S.) from $84 and reiterated an "outperform" rating. The average target on the Street is $90.15.

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Molycorp Inc. reported weaker-than-expected fourth-quarter results, but CIBC World Markets analyst Matthew Gibson is still recommending the stock as a "sector outperformer."

He's encouraged by last week's announcement that chemicals distributor Univar Inc. has signed a five-year contract to distribute Methanex's cerium-based water treatment product. Meanwhile, with the company holding $600-million in cash after its recent financing, its balance sheet appears to be strong, he said.

Target: Mr. Gibson reiterated a $16 (U.S.) price target. The average analyst target is $17.60.

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Desjardins Securities analyst Keith Howlett sees greater upside in shares of Alimentation Couche-Tard Inc. thanks to accelerating cost savings resulting from its recent acquisition of Statoil Fuel & Retail.

He sees up to $200-million (U.S.) in synergies over three years, and believes Couche-Tard will see other significant acquisition opportunities over the next 18 months in Europe, the U.S. and Canada.

"Our view is that Couche-Tard's proven record of acquisition discipline and operational expertise places it in the 'sweet spot' of ongoing industry change," he said.

Target: Mr. Howlett raised his price target by $10 to $64 (Canadian) and maintained a "buy" rating. The average target on the Street is $56.50.

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Raymond James analyst Theoni Pilarinos upgraded oil and gas industrial equipment maker McCoy Corp. to "outperform" from "market perform," finding encouragement in the company's growth plans.

She believes the stock's recent pullback makes for a buying opportunity, especially given its long-term plans to improve operating efficiencies and roll out new products.

Target: Ms. Pilarinos maintained a $5.50 price target. The average target is $6.

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For more analyst actions, breaking investing news and analysis, follow Darcy Keith on Twitter at @eyeonequities

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About the Author
Investment Editor

Darcy Keith is The Globe and Mail's Investment Editor. He has been a business journalist since 1992 and joined the Report on Business in 2010 from Yahoo! Canada, where he was the senior editor of finance. More

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