In The Beauty Industry, E.L.F. Is Looking Attractive

Cowen’s Oliver Chen expects e.l.f. Beauty Inc ELF to gain share in an attractive beauty industry, calling the company the “Fast Fashion” of beauty.

Chen initiated coverage of the company with an Outperform rating and price target of $32.

Attractive Outlook

The analyst expects e.l.f. Beauty to gain market share through its “shorter supply chain times, which drive sharper innovation, very affordable price points 80 percent below prestige, trend-right execution, & runway of growth given wholesale & own-store opportunity.”

Chen estimates that the company would deliver EPS CAGR of 35-40 percent during FY 2015-2019, driven by distribution and comp growth, along with EBIT margin expansion.

Growth Path

“ELF’s low price points combined with millennial, multicultural, & beauty enthusiast appeal should drive a combination of distribution and comp growth,” the analyst stated.

Chen expects growth to be driven by product innovation, further supported by a short, flexible and connected supply chain.

EBIT margins are expected to remain flat through FY 2017, before starting to expand in FY 2018, driven by gross margin expansion and SG&A starting to lever.

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