Analysts: Estée Lauder's Strength Isn't Just Cosmetic

Estée Lauder Companies EL put on its best face at its Wednesday investor day in New York, and several analysts said they remain impressed with the company’s strong foundation.

Investors have already accounted for much of the iconic cosmetic company's strength, though, according to the sell-side. 

The Analysts

RBC Capital Markets analyst Nik Modi reiterated an Outperform rating on Estée Lauder and raised the price target from $168 to $173.

Wells Fargo analyst Bonnie Herzog maintained a Market Perform rating on the stock with a price target of $142.

Macquarie Research analyst Caroline Levy stayed bullish, reiterating an Outperform rating on Estée Lauder and raising the price target from $165 to $170.

RBC Capital Markets

“It's clear that EL’s Leading Beauty Forward cost savings initiative is ramping nicely and the company is reinvesting a significant portion of savings into brand spend,” Modi said in a Thursday note, adding that RBC likes EL’s balance between margin expansion and top-line growth. 

Estée Lauder is one of just a handful of brands with effective measurement devices for consumer insights, the analyst said.

Modi said investors should watch for brand growth in China, noting that the country already accounts for about 7 percent of EL sales, and economic growth there could boost the company’s sales.

Wells Fargo

While Wells Fargo is impressed with EL's performance, Herzog said in a Thursday note that much of the appreciation is already baked into the stock.

Still, the company has opportunities to generate growth over the next several years from additional penetration into emerging commerce and movement on the e-commerce front, with online sales growing sharply, the analyst said.

Herzog also noted EL’s “robust” Chinese trends, and said she expects them to continue.  

One cautionary note raised by more than one analyst: the company’s North American performance has been mixed, though Estée Lauder said it is “highly focused” on North American growth, particularly in e-commerce. 

Macquarie

“This is the best long-term growth story across our universe, which happens to be delivering the best near-term growth too,” Levy said in a Thursday note.

“While guidance is unchanged at 6-8 percent sales [growth] and double-digit-plus EPS growth long-term, we see room for better-than-expected performance.”

Price Action

Estée Lauder shares were up 1.2 percent at $155.59 at the time of publication Thursday.

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