Why A High Valuation Is The Only Thing Not To Love About Ulta Salon

Deutsche Bank maintains its Hold rating on Ulta Salon, Cosmetics & Fragrance, Inc. ULTA, despite its strong results, solely based on its high valuation.

The stock has recouped its post-analyst day losses and at 28x Deutsche Bank’s FY 2017 and FY 2018 estimates of $8.14 and $9.79. The brokerage’s new price target is $295, based on 30x its 2018 EPS forecast.

“This is a premium to our long term growth rate estimate of 23x due to ULTA’s retail leading comps,” analyst Mike Baker wrote in a note.

Ulta reported a blow-out quarterly result across all metrics and upbeat guidance. In particular, comps were 16.7 percent, beating the 14–15 percent pre-announcement and suggesting no slowdown in trends over Black Friday.

Quarter's Gist

  • Q3 EPS: $1.40 vs. estimated $1.37.
  • Sales: $1.131 billion vs. estimated $1.11 billion.
  • Comps: Up 16.7 percent.
  • Transactions: Grew 11.1 percent.
  • Average ticket: Up 5.6 percent.
  • Q4 EPS Guidance: $2.08–$2.13 vs. estimated $2.05.
  • Q4 Sales Guidance: $1.516 billion–$1.541 billion vs. estimated $1.51 billion.
  • Q4 Comp Guidance: Growth Of 12–14 percent.
  • FY 2016 Guidance: Raised.
  • FY 2016 Comps Guidance: Up 13–15 percent.
  • FY 2016 EPS Guidance: Growth in high-20-percent range.

Commentary

"More importantly, the comp guidance of 12–14 percent is higher than the original guidance of 11–13 percent from the past two quarters and is in fact the highest outlook ULTA has ever offered. Given their typical 3–4 percent beat, this points to confidence that current trends are not slowing,” Baker highlighted.

me of 2.63 million shares versus its three-month average of 883.29 thousand shares. Baker raised his price target to $295 from $280.

At last check, Ulta shares were down 0.67 percent on the day, trading at $255.69.

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Posted In: Analyst ColorEarningsNewsGuidancePrice TargetReiterationAnalyst RatingsDeutsche BankMike Baker
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