Estée Lauder Stock Sees Price Target Cuts after Earnings

Estée Lauder (EL) stock fell 3.5% on October 31 even as the beauty monolith announced strong earnings results for the first quarter of fiscal 2020. The fiscal first quarter ended on September 30. The stock was down as the company lowered its earnings outlook for fiscal 2020. Estée Lauder owns popular brands like MAC, Bobbi Brown, and Clinique.

Estée Lauder’s sales grew 10.5% to $3.90 billion in the first quarter. Meanwhile, its adjusted EPS jumped 18.4% to $1.67. Analysts’ expected EPS of $1.60 on sales of $3.85 billion. On October 31, the company also announced a 12% hike in its quarterly dividend to $0.48.

Analysts lowered price targets

On November 1, Berenberg raised its price target for Estée Lauder stock to $235 from $230. However, several analysts lowered their price target in reaction to Estée Lauder’s weak outlook.

  • J.P. Morgan: to $211 from $217.
  • Citigroup: to $223 from $231.
  • Credit Suisse: to $207 from $210.
  • Jefferies: to $175 from $190.
  • UBS: to $200 from $205.

Last week, Piper Jaffray lowered its rating for Estée Lauder stock to “neutral” from “overweight.” Piper Jaffary is concerned about the weakening makeup demand among young girls, who now prefer minimal makeup.

Estée Lauder stock was up 43.4% year-to-date as of November 1. Coty (COTY) stock has risen 77.9% this year, while Ulta Beauty (ULTA) stock has declined 4.8%. Estée Lauder and Coty have outperformed the 22.3% rise in the S&P 500 Index.

Currently, 68% or 17 out of 25 analysts rate Estée Lauder a “buy.” Seven analysts have a “hold” recommendation while one analyst rates the cosmetics maker a “sell.” With a price target of $207.50, analysts see an upside of about 11% in the stock over the next 12 months.

Why Estée Lauder lowered its earnings guidance 

Estée Lauder delivered strong performance in the first quarter despite a volatile macro environment and softer demand for makeup in North America. Also, the impact of Brexit uncertainty on UK consumer spending and disruptions in Hong Kong hit the first-quarter business.

Meanwhile, double-digit growth in Greater China, 24% revenue growth in the skincare category, online sales, and travel retail business drove the first-quarter performance. Notably, the Estée Lauder, La Mer, and Clinique brands contributed significantly to skincare sales.

Estée Lauder continues to expect revenue growth between 7% and 8% in fiscal 2020. However, it lowered its adjusted EPS outlook to the range of $5.85–$5.93 compared to the prior estimate of $5.90–$5.98.

Estée Lauder’s revised earnings per share guidance reflects risks related to the US–China trade war, Brexit uncertainty, and continued unrest in Hong Kong. Also, the company expects moderation in its sales growth in China. However, it believes that innovation in skincare and foundations, strong online sales, and better fragrance business in the holiday season would gradually improve its North America sales.

What to expect from rivals Coty and Ulta Beauty

Coty is scheduled to announce its results for the first quarter of fiscal 2020 on November 6. Analysts expect Coty’s revenue to decline 3.3% to $1.97 billion. Adjusted EPS are expected to fall by 45% to $0.06.

Last month, Coty announced that it was considering a divestiture of its Professional Beauty business and related hair brands, and its Brazilian operations. The decision is a part of the company’s efforts to streamline its business and focus on cosmetics, skincare, and fragrance businesses.

Ulta Beauty will report its third-quarter earnings on December 5. Analysts expect Ulta Beauty’s sales to rise 8.4% to $1.69 billion, while adjusted EPS could decline 1.8% to $2.14.

Softness in the US makeup category is expected to hit Ulta Beauty’s results. Both Estée Lauder and Ulta Beauty are focusing on innovation to revive the prospects of their makeup businesses.