11:31 AM EDT, 05/29/2024 (MT Newswires) -- Lululemon Athletica's ( LULU ) fiscal Q1 US sales likely grew at a high single-digit rate, which will surprise to the upside and is a potential catalyst for stock valuation rerating higher, Morgan Stanley said in a report Wednesday.

The focus is expected to be on the company's US sales when it releases its quarterly results on June 5, with a revenue-driven earnings per share growth upside and a fiscal 2024 EPS guidance raise in the cards, the firm said.

"While our conversations suggest investors anticipate a US sales result as low as [roughly flat year on year], our high frequency demand/sales data argues an outcome as high as [low double digit-low-teens percentage] isn't out of the question," it said.

"In a base case, we assume a more conservative [high single-digit percentage] US growth rate, and believe this result would not only surprise to the upside, but also deter the bear thesis for now, potentially yielding some valuation re-rating off currently low levels," Morgan Stanley added.

Morgan Stanley also said the forecasts for fiscal Q2 sales may also be too low. But the company's "uncertain revenue growth trajectory" and a possible minimal revision to fiscal 2024 EPS guidance "likely keep the bear thesis very much alive," the firm said.

Still, it said valuation has been "unfairly punished for what is still a best-in-class asset."

Morgan Stanley reiterated its overweight rating on the stock, but trimmed its price target to $404 from $490 taking into account reduced topline assumptions.

Price: 297.45, Change: +2.19, Percent Change: +0.74