Estee Lauder Wins Over Another Analyst: Why RBC Is Turning Bullish

Estee Lauder Companies Inc EL won over another Street analyst Monday, as RBC Capital Markets sees the beauty company as being run by one of the best management teams.

The Estee Lauder Analyst: Nik Modi upgraded Estee Lauder from Sector Perform to Outperform with a price target lifted from $194 to $240.

The Estee Lauder Takeaways: Estee Lauder's stock has lagged major indices during the COVID-19 pandemic. The fourth-quarter the company issued Thursday prompted RBC to turn bullish for five reasons, Modi said in a Monday upgrade note. (See his track record here.)

First, the pandemic accelerated a favorable trend of consumers shopping online for beauty products, the analyst said. Online sales come with more favorable margins versus department stores and offer better customer data, he said. 

Second, Estee Lauder has shown an ability to "weather the storm and bounce back" from prior difficulties, Modi said, adding that the stock fell 50% during the global financial crisis, only to gain nearly 200% on the rebound. 

Third, the company deserves credit for cutting operating expenses by 22% in the fourth quarter, and some of these cuts will remain permanent, the analyst said. This should help Estee Lauder return to pre-pandemic margins of 17.5% by fiscal 2022, with further expansion in outer years, he said. 

Fourth, Estee Lauder's recent track record of success includes a shift to online sales, a focus on fast-growing skincare, growth in Asia and generating margin expansion year-over-year for each of the past five years prior to the pandemic, Modi said.

This "lends credibility" to its ability to execute on its business acceleration program, the analyst said. 

Estee Lauder's long-term growth profile of 6% to 8% remains "achievable" from a combination of inorganic growth and strong organic growth, according to RBC. 

EL Price Action: Shares of Estee Lauder were trading higher by 3.96% at the time of publication Monday at $215.20. 

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