Morgan Stanley Reviews Ulta Salon Earnings

In a report published Friday, Morgan Stanley analyst Simeon Gutman maintained an Equal-Weight rating on

, after the company reported robust 1Q results. Ulta Salon reported its 1Q results ahead of expectations, with EPS growth of 34 percent y/y on 11.4 percent comps and EBIT margin expansion of 106 bps. Despite the high quality results, the company did not raise its 2015 guidance. Analyst Simeon Gutman said, "Yes, ULTA's multiple may seem stretched (28x '16 estimates), but the scarcity of its growth (11% comps on a 7% traffic gain) and its future runway (33% of store growth in front of it) should protect valuation. This means one could get rewarded for earnings upside, which was resounding in Q1 (an 11 cent beat)." The company's share price has risen 4 percent over the past two days. Moreover, market expectations for comps had risen to the low double digit range. While the company was able to meet this, EPS growth for the rest of this year is likely to decelerate, with comps getting tougher and investment spending picking up. "Still, the kind of growth ULTA is achieving absolutely and relative to other retailers is extremely rare and the company remains one of the best positioned growth stories in our coverage," Gutman added. While Ulta Salon's Q1 was "strong across the board" and it core strategies and investments remain on track, expectations and multiple are high, the report mentioned.