What CLSA Thinks of Estée Lauder Companies

Price movement

Estée Lauder (EL) has a market cap of $29.1 billion. It fell 0.69% to close at $79.02 per share on November 4, 2016. The stock’s weekly, monthly, and year-to-date (or YTD) price movements were -8.6%, -10.5%, and -9.4%, respectively, on the same day.

Estée Lauder is trading 8.5% below its 20-day moving average, 9.9% below its 50-day moving average, and 12.9% below its 200-day moving average.

What CLSA Thinks of Estée Lauder Companies

Related ETF and peers

The iShares Russell 3000 ETF (IWV) invests 0.09% of its holdings in Estée Lauder. The ETF tracks a cap-weighted index that measures the investable US equities market, covering the entire market-cap spectrum, including micro-caps. The YTD price movement of IWV was 3.7% on November 4.

The market caps of Estée Lauder’s competitors are as follows:

  • Coty (COTY) — $16.5 billion
  • Coach (COH) — $9.9 billion
  • Avon Products (AVP) — $2.6 billion

Estée Lauder’s rating

CLSA has downgraded Estée Lauder’s rating to “underperform” from “buy.”

TheStreet reported, “CLSA said Estee Lauder’s first-quarter organic revenue growth of 2% was lower than its estimate for an increase of 3%, the Fly noted.”

The report added, “The company also faces accelerated headwinds from channel mix, categories and brand fragmentation, according to the firm. CLSA sees slower growth offsetting gains from Estée Lauder’s cost savings program.”

Performance of Estée Lauder in fiscal 1Q17

Estée Lauder reported fiscal 1Q17 net sales of $2.9 billion, a rise of 1.1% compared to net sales of $2.8 billion in fiscal 1Q16. Sales of fragrance and hair care products rose 7.0% and 1.5%, respectively, and sales of skin care products fell 0.63% in fiscal 1Q17 compared to fiscal 1Q16.

The company’s gross profit margin and operating margin fell 40 basis points and 140 basis points, respectively, in fiscal 1Q17 compared to fiscal 1Q16.

Its net income and EPS (earnings per share) fell to $294.0 million and $0.79, respectively, in fiscal 1Q17 compared to $309.0 million and $0.82, respectively, in fiscal 1Q16.

Estée Lauder’s cash and cash equivalents fell 27.4%, and its inventory and promotional merchandise rose 2.5% in fiscal 1Q17 compared to fiscal 4Q16. Its current ratio rose to 1.62x, and its debt-to-equity ratio fell to 1.5x in fiscal 1Q17 compared to a current ratio and a debt-to-equity ratio of 1.58x and 1.6x, respectively, in fiscal 4Q16.

Projections

Estée Lauder (EL) has made the following projections for fiscal 2017:

  • net sales growth: 6%–7%
  • reported EPS: $3.20–$3.30
  • charges associated with restructuring charges: ~$80 million–$100 million
  • EPS before charges associated with restructuring activities: $3.38–$3.44

The company has made the following projections for fiscal 2Q17:

  • net sales growth: 3%–4% and 5%–6% on a constant currency basis
  • reported EPS: $1.03–$1.10
  • restructuring charges: ~$30 million–$40 million
  • EPS before charges associated with restructuring activities: $1.10–$1.15

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