uploads///el pm

What Moody’s Thinks of Estée Lauder

By

Updated

Price movement

Estée Lauder (EL) has a market cap of $29.4 billion and rose 1.4% to close at $78.11 per share on November 17, 2016. The stock’s weekly, monthly, and YTD (year-to-date) price movements were -0.13%, -10.8%, and -10.4%, respectively, on the same day.

EL is now trading 5.2% below its 20-day moving average, 8.9% below its 50-day moving average, and 13.7% below its 200-day moving average.

Article continues below advertisement

Related ETF and peers

The iShares Russell 3000 ETF (IWV) invests 0.09% of its holdings in Estée Lauder. The YTD price movement of IWV was 9.7% on November 17.

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

  • Coty (COTY): $14.7 billion
  • Coach (COH): $10.5 billion
  • Avon Products (AVP): $2.7 billion

Latest news on Estée Lauder

Moody’s Investors Service has affirmed Estée Lauder Companies’ senior unsecured rating A2, senior unsecured shelf rating (P)A2, and a commercial paper rating of Prime-1 after the announcement of its acquisition of Two Faced. Moody’s gave the stock’s rating outlook as “stable.”

Moody’s reported the following: “The affirmation reflects Moody’s expectation that Estée Lauder will continue to be a strong global player in prestige beauty. While the company’s pace of acquisition has increased, Moody’s does not believe that Estée Lauder will pursue any additional significant debt-funded acquisitions until it has reduced leverage to levels the rating agency feels are more comfortable for its ratings. Pro-forma adjusted debt-to-EBITDA will increase to 2.3x from 1.8x following the Two Faced transaction.”

The report also stated: “However, Moody’s expects leverage to improve through a combination of earnings growth and debt reduction. Moody’s believe that Estée Lauder will continue to deliver low-to-mid-single-digit organic sales growth and solid earnings trends for the next several years.”

Article continues below advertisement

Estée Lauder’s performance in fiscal 1Q17

Estée Lauder (EL) reported fiscal 1Q17 net sales of $2.9 billion—a YoY (year-over-year) rise of 1.1%, as 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% YoY in fiscal 1Q17.

The company’s gross profit margin and operating margin narrowed 40 basis points and 140 basis points, respectively, YoY in fiscal 1Q17.

Its net income and EPS (earnings per share) fell to $294 million and $0.79, respectively, in fiscal 1Q17, as compared to $309 million and $0.82, respectively, in fiscal 1Q16.

Estée Lauder’s cash and cash equivalents fell 27.4% YoY, and its inventory and promotional merchandise rose 2.5% YoY in fiscal 1Q17. Its current ratio rose to 1.62x, and its debt-to-equity ratio fell to 1.5x in fiscal 1Q17, as 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

Next, we’ll discuss Coca-Cola (KO).

Advertisement

More From Market Realist