Before delving into the reliability of brokerage recommendations and how investors can leverage them, let’s peek into the current sentiment on Lululemon (LULU) among Wall Street analysts.
Lululemon currently boasts an average brokerage recommendation (ABR) of 1.50, landing between Strong Buy and Buy on a scale of 1 to 5. This ABR is derived from 27 brokerage firms, with 19 Strong Buy and three Buy recommendations, comprising the lion’s share of the total endorsements.
Understanding ABR for LULU
While the ABR may lean favorably towards Lululemon, solely relying on this metric for investment decisions raises questions. Research reveals a potential bias in brokerage recommendations due to the vested interests of these firms, casting some doubt on their reliability and true alignment with retail investors’ interests.
Unlike these broker-centric recommendations, Zacks Rank stands out as an audited tool offering a more balanced and timely view of a stock’s potential. It bases its assessment on earnings estimate revisions, providing a different perspective from traditional ABRs.
Comparing ABR and Zacks Rank
Despite both using a 1 to 5 scale, ABR and Zacks Rank rely on entirely distinct methodologies. ABR reflects brokerage recommendations, typically displayed in decimals, while Zacks Rank uses a whole number scale, informed by earnings estimate revisions.
Analysts’ practices of overly optimistic recommendations, potentially overshadowing their research-based assertions, contrast sharply with Zacks Rank’s reliance on data-driven, earnings-focused insights.
Zacks Rank’s agility in capturing swift changes in companies’ earnings estimates, allowing for a more current assessment than ABR, differentiates it as an effective predictor of future price movements.
Feasibility of Investing in LULU
Reviewing Lululemon’s earnings estimate revisions, its Zacks Consensus Estimate sees a 0.5% rise over the past month to $12.46. This uptick in EPS estimates reflects an increasing bullishness among analysts, propelling Lululemon to obtain a Zacks Rank #2 (Buy).
Given Zacks Rank’s impartial and earnings-driven assessment, mirroring the Buy-equivalent ABR, investors may find it a beneficial reference point for evaluating Lululemon.