Ulta Beauty Still Has Room To Run After Another Stellar Quarter

Reviewing the first-quarter results reported by Ulta Beauty Inc ULTA, Buckingham Research Group termed the quarter as stellar and raised the price target on the shares of the company, suggesting the stock still has room to run. At the same time, the firm downgraded the shares, as it preferred moving to the sidelines on balanced risk/reward.

Stellar Quarter

Analyst Kelly Halsor noted Ulta Beauty reported adjusted earnings per share of $1.91, ahead of the estimated $1.77, with a better-than-expected 14.3 percent increase in comp and 60 basis points of operating margin expansion aiding the solid results.

"LTA remains one of the fastest growing companies in retail and we see no signs of a slowdown in the business near-term as the company continues to take meaningful share in the growing prestige beauty category," the analyst said.

More Upside Likely

Buckingham Research Group downgraded the shares of Ulta Beauty to Neutral from Buy, while it raised the price target on the shares to $330 from $325, suggesting 9 percent upside from current levels.

With the revised price target, representing a 35-times multiple, the firm said most of the upside to earnings per share is already priced in, given that a multiple expansion beyond 35 times seems difficult to contemplate.

Any Growth Slowdown Could Drag Shares

While noting that Ulta Beauty's premium valuation is supported by substantial expected future earnings per share beat, the firm said the stock could pullback if there is any indication of slowdown in growth.

"As such, we will move to the sidelines for now and recommend investors remain opportunistic around valuation to add to positions," the firm said.

"At current levels, we believe the risk/reward is more fairly balanced with 20 percent downside/24 percent upside."

At the time of writing, shares of Ulta Beauty were up 4.01 percent at $304.80.

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