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

Against the backdrop of a populous teen beauty scene, Ulta Beauty Inc ULTA is looking pretty.

The Rating

PiperJaffray analyst Erinn Murphy upgraded Ulta form Neutral to Overweight and raised the price target from $212 to $236.

The Thesis

PiperJaffray’s Teen Survey revealed a multitude of factors in Ulta’s favor, Murphy said in a Tuesday report. (See the analyst's track record here.)

For one, female teenagers are spending more on cosmetics. They averaged $368 in purchases this spring for a 4-percent year-over-year increase and a 22-percent sequential pop, according to PiperJaffray.

“We are seeing an expanded set of teens indicate they wear makeup everyday or sometimes," Murphy said. 

Notably, 74 percent of respondents reported a preference for specialty shopping, which accelerated from 66 percent in the fall, and 90 percent said they prefer to buy in store.

“While Sephora remains the No. 1 shopping destination among upper-income females, Ulta re-emerged as the No. 1 destination for average-income females,” Murphy said, noting below-expectations acceleration from competing brands like Fenty.

Product preferences also benefit Ulta. Skincare, which represents 21 percent of Ulta sales and continues to expand, led the spending categories with the greatest year-over-year growth. Color cosmetics, which rose 19 percent between the fall and spring, represent 51 percent of Ulta’s incremental revenue growth.

At the same time, Ulta has been expanding three brands that ranked in the survey’s top 20.

Price Action

At the time of publication, Ulta shares were trading up 4 percent to $220.66. 

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