Wells Fargo Bullish On Estée Lauder After Analyzing Data From China

Beauty company Estée Lauder Companies Inc EL offers investors a compelling and underappreciated growth story, according to Wells Fargo.

The Estée Lauder Analyst: Chris Carey upgraded Estée Lauder's stock rating from Equal Weight to Overweight with a price target lifted from $290 to $340.

The Estée Lauder Thesis: Two key data points out of China make the case for Estée Lauder to beat estimates in its third-quarter results (scheduled May 3), Carey wrote in the upgrade note.

First, China is mostly an importer of cosmetic goods, so import data would be an ideal proxy to gauge demand levels.

Government data released on Tuesday shows cosmetics imports accelerated to 62.8% growth in January and February, marking the highest rate of growth since the start of 2020, the analyst wrote. This makes the case for a "material sequential acceleration" in Asia Pacific sales growth in the fiscal third quarter.

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The second piece of data is China duty-free imports as this is a proxy for Estée Lauder's China Domestic Travel Retail business, the analyst wrote.

On Tuesday, government data showed China's duty-free imports accelerated from 46.8% in the last three months of 2020 to 88.8% in January and February 2021.

The China domestic travel retail business for Estée Lauder is important as it can entirely offset major declines in the company's travel retail business in the rest of the world.

The research firm is estimating the company to earn $1.42 per share in the fiscal third quarter versus the consensus estimate of $1.28 and management's own outlook of $1.10 to $1.20 per share.

EL Price Action: Shares of Estée Lauder Companies were trading higher by nearly 3% Wednesday morning at $289.

(Photo: Estée Lauder)