As shares of Lululemon Athletica Inc. (LULU) trade down nearly 8% in 2017, losing about 26% of their value since the same time last year, one team of analysts remains upbeat that the Vancouver-based yoga-inspired apparel maker will outrun its U.S. competitors  

Analysts at Bank of American Merrill Lynch issued a double upgrade on shares of the athleisure market pioneer, lifting its rating to buy from underperform. BofA’s Rafe Jadrosich indicates that LULU is stealing away market share from athletic apparel and footwear makers Nike Inc. (NKE) and Under Armour Inc. (UAA). He expects the Canadian company’s edge over its “saturated competitors” to boost its same store sales by about 5% in the second quarter, compared to negative 1% in Q1.

Gaining on ‘Robust’ Innovation

“Nike and Under Armour have suffered from a lack of innovation, over-distribution in moderate channels, and heavy promotions” wrote Jadrosich, while “Lululemon’s fabric and product innovation appears robust.”

BofA also highlighted upside from Lulu’s increased assortment of its Jacquard line, which has “higher average selling prices and is difficult to replicate.” Along with the upgrade, Jadrosich increased his price target on LULU from $49 to $70, reflecting a 15% upside from Friday morning. (See also: Lululemon Diversifies Outside Yoga, Invests in Cycling Apparel Startup.)

Not all investment firms are as bullish on LULU. This week, analyst at Credit Suisse issued a downbeat report indicating that they are concerned over a recent spike in promotional activity at LULU in the recent quarter, noting that the uptick came from an increase in the proportion of items on sale rather than steeper discounting. While LULU’s markdown intensity is far below its peers, the analysts write that the surge is “uncharacteristic for a brand which has usually limited discounts to post-holiday clearance activity.” (See also: Nike and Under Armour's Growth Went To Adidas and Puma.)

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