Ulta Beauty A Buy, But A Few Blemishes Move Stock Off Goldman's Conviction List

Ulta Beauty IncULTAMatthew FasslerUlta's stock with a price target lowered from $290 and $267 while simultaneously removing the name from the "Goldman Sachs Conviction List." Cosmetics accounted for approximately 51 percent of Ulta's total revenue last year but industry sources are now calling for "lesser innovation" in the space, Fassler commented in a research report. While the beauty industry is also seeing greater innovation in hair-care and skincare, the growth in these two categories won't be large enough to offset a slowdown in cosmetics. However, this doesn't imply that investors should be concerned as the company remains a share gainer in the overall beauty space. In fact, investor concerns are either "misguided or premature" as there is no reason to believe Ulta's core value proposition is under threat, Fassler added (see his track record here). For the time being at least it would be wrong to assume that Amazon.com, Inc. AMZN offers a compelling alternative or that the addition of rival brands to Amazon's platform is imminent.

Bottom line, stabilization in Ulta's revenue and ability to achieve same-store sales guidance remains a base case scenario. But weaker than prior trends in the overall beauty space implies a reduction in Ulta's price target is necessary although the stock still boasts an "appealing" risk to reward profile.

Related Links: Amazon Fear, Analyst Downgrade Make For An Ugly Ulta Beauty Chart Ulta Beauty Becoming A Better Balanced Business _______ Image Credit: By Michael Rivera (Own work) [CC BY-SA 4.0 (https://creativecommons.org/licenses/by-sa/4.0)], via Wikimedia Commons