Guggenheim Survey Of Ulta Consumers Paints Bullish Picture

A survey of more than 500 Ulta Beauty Inc ULTA consumers confirms the beauty company's large growth opportunity, according to Guggenheim.

The Analyst

Guggenheim Partners' Steven Forbes upgraded Ulta Beauty's stock rating from Neutral to Buy with a new $260 price target. The stock was also named as Guggenheim's "best idea." 

The Thesis

Guggenheim's proprietary survey of 536 female Ulta clients across age groups, geographic regions and income found the following data points, Forbes said in a Monday note: 

• Only 26 percent of respondents shop across all categories, which implies a "significant" opportunity for adjacent category share expansion.
• The company's operating model of offering solutions across all price ranges and categories is clearly resonating with consumers.
• Ulta continues to gain "significant traction" with younger age groups, including millennials.
• Only 12 percent of respondents indicated they spent less at Ulta on a year-over-year basis, which implies a strong customer base.
• While Amazon.com, Inc. AMZN is resonating well with consumers in beauty products, it ranked fourth on the list when Ulta consumers were asked where else they shop for prestige cosmetics.
• Offering discounts to Ultimate Rewards members could help in driving incremental sales in difficult categories like hair care and fragrances.
• Ulta's maturing e-commerce business should continue to see "healthy" transaction and ticket growth.

The survey shows that Ulta's secular growth potential is "undervalued," with the stock trading at just 10.3x 2019E EBITDA, Forbes said. 

Price Action

Shares of Ulta Beauty were trading higher by 3.83 percent at the time of publication Monday. 

Related Links:

Piper Jaffray Upgrades Ulta; Survey Reveals Teens Spending More On Cosmetics

7 Analysts Weigh In On Ulta's Q4 Miss