Estee Lauder Deserves A Premium, Piper Jaffray Says

In a report published Wednesday, Piper Jaffray analysts upgraded shares of

from Neutral to Overweight, with a price target of $100. In the report Piper Jaffray noted, "We have reconsidered our thesis backed by a more thoughtful framework around ROIC, leverage, and acquired growth, suggesting share price appreciation over the next 2-3 years. We think superior returns support a premium multiple and we are stretching our valuation objective out to FY17." "We are upgrading from Neutral to Overweight, with a multi-year view of stock price appreciation potential," the analysts said. Piper Jaffray's Spring 2015 women's survey, two recently attended tradeshows in the beauty industry and "a more detailed model build surrounding capital leverage" all point towards a "significant growth curve developing among beauty brands." Currency headwinds are likely to persist, while growth maturation in Clinique and Estee Lauder may only be partly offset by growth in emerging and to-be acquired brands. "Following a period of heightened investment spend, we think the model is now tuned for growth driven leverage, with pass through rates expanding and marketing dollar spend proving more effective," the report mentioned. The analysts believe that Estée Lauder has the capital framework to offset "moderation in core brands" with the help of "a more robust acquisition and brand emergence strategy." A new group of power brands is likely to emerge. "We expect EL to successfully navigate end market changes by driving revenue and profit dollar replacement through distribution and growth among emerging and new to-be acquired brands," the analysts added.