Estee Lauder: Analysts Mostly Bullish On Q2 Results, Despite Weak Guidance

Estee Lauder Companies Inc EL is having a strong week after reporting a second-quarter earnings beat Tuesday.

The Sell-Side Reacts 

◘ Although the company reported weak third-quarter and 2019 earnings guidance, Raymond James analyst Joseph Altobello reiterated an Outperform rating on the company and raised the price target from $154 to $164.

Trends remain healthy, with global growth in three of Estee Lauder’s four largest brands — Estee Lauder, MAC and LaMer — and Clinique continuing to make progress, the analyst said. 

“In addition, despite fears of a slowdown, sales in China again grew very strong double digits, with market growth accelerating and EL gaining share." 

◘ Bank of America Merill Lynch's Oliver Tong also took a bullish stance, reiterating a Buy rating and raising the price target from $155 to $170.

“While there are a number of puts and takes, the important element in our view is that management continues to embed in its expectations a slowdown in China and travel retail, though not experiencing such a deceleration in either business to date,” the analyst said. 

◘ Morgan Stanley analyst Dara Mohsenian said the market is undervaluing Estee Lauder’s long-term growth potential, with its favorable exposure to high-growth channels within the prestige beauty category.

Mohsenian reiterated an Overweight rating with a $166 price target.

◘ Macquarie Research analyst Caroline Levy said bumps in the road are likely, but the analyst still thinks the long-term Estee Lauder story remains compelling.

“China could continue to deliver high-margin, double-digit sales growth for another decade,” Levy said. 

Estee Lauder’s underleveraged balance sheet “gives it optionality for buybacks and/or accretive M&A," she said. 

Macquarie reiterated an Outperform rating with a $165 price target.

◘ Berenberg analyst Rosie Edwards took a more cautious stance after the run-up in Estee Lauder shares after the Q2 print.

The analyst downgraded Estee Lauder from Buy to Hold and maintained a $150 price target.

“The group’s balanced and structural growth is difficult (if not impossible) to replicate both at the top and bottom line, with ongoing margin improvement adding to its best-in-class top line to drive double-digit operating profit and EPS growth,” Edwards said. 

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