Why This Analyst Is Bullish On Beauty Stocks: Ulta, Estee Lauder, Elf

Strong economic recovery and the dissipation of COVID-19 impacts are tailwinds in the beauty industry, according to Raymond James, which is turning bullish on three companies.

The Beauty Industry Analyst: Olivia Tong upgraded Ulta Beauty, Inc ULTA from Market Perform to Outperform, setting a $395 price target. 

• Tong upgraded Estee Lauder Companies, Inc EL from Market Perform to Strong Buy, setting a $355 price target.
• Tong initiated coverage of ELF Beauty, Inc ELF with an Outperform rating and $33 price target.

Related Link: 3 Reasons Growth Investors Will Love Ulta

The Ulta Takeaways: Ulta’s retail locations generate its highest margins, said Tong.

Store openings and a partnership with Target Corp. TGT are expected to generate 30% revenue growth in 2021 and longer-term 7% growth, the analyst said. 

Ulta’s e-commerce business is also expected to expand sales as customers leverage Ulta’s AI and AR features, spending around three times as much as in-store customers, she said. 

The Estee Lauder Takeaways: Estee Lauder is a “best-in-class performer within the high-growth beauty category,” said Tong.

The company is shifting its presence toward China, skincare and e-commerce, driving margin and profit growth — factors the market is not pricing in, the analyst said. 

The ELF Takeaways: Unlike many of its competitors, ELF grew demand through the pandemic, said Tong.

Success in digital marketing, a growing e-commerce platform, the opportunity to expand globally and continued diversification to higher-margin products “provide a multi-faceted growth path for the company,” said the analyst.

ULTA Price Action: Ulta was up 1.45% to $344.22 at last check Wednesday. 

EL Price Action: Estee Lauder was up 1.48% to $325.20.

ELF Price Action: ELF was up 1.56 % to $26.10.

Related Links: Why Retail Is Expected To Drive Market Growth