01:07 PM EDT, 06/06/2024 (MT Newswires) -- Lululemon Athletica's ( LULU ) shares jumped more than 10% after the markets closed Wednesday on "better-than-feared" Q1 earnings and US sales, along with an unexpected fiscal year 2024 EPS guidance raise, Morgan Stanley said in a note Thursday.

These results, however, weren't enough to quash the bear thesis, which potentially continues to cap the company's multiple near term, according to the note.

Looking forward, Morgan Stanley acknowledges that Lululemon's slowing growth and shift away from its core offerings justify a discounted valuation compared to its historical performance. "[W]e think the level currently sits closer to a bottom, [and] that as the US rate of change potentially improves, the business' best-in-class profitability profile continues to shine, [and] positive [near-term] EPS revisions likely materialize," Morgan Stanley said.

Despite a positive Q1 and raised guidance, doubts remain about Lululemon's future. Challenges in areas like the women's segment and leadership changes mean management's actions are crucial for further gains, Morgan Stanley said, adding that it expects positive EPS revisions this year, with Q3 likely being pivotal.

Morgan Stanley is evaluating its estimates for Lululemon due to the company's new reporting structure.

The investment firm maintained its overweight rating on Lululemon, with a price target of $404.

Price: 326.09, Change: +17.82, Percent Change: +5.78