2 Ways E.L.F. Beauty's Guidance Could Play Out

E.L.F. Beauty Inc ELF reports earnings Wednesday after the bell and Piper Jaffray expects the company to reiterate its guidance. 

The Analyst

Piper Jaffray's Erinn Murphy.

The Rating

Murphy downgraded E.L.F. Beauty Inc from Overweight to Neutral and lowered Piper Jaffray's price target from $26 to $23. (See Murphy's track record here.) 

The Thesis

While Murphy said she sees long-term opportunity in E.L.F. Beauty Inc and is favorable on the Oakland, California-based brand, the analyst said she's concerned the next few quarters are going to have a more balanced risk profile. Due to a slowdown in cosmetics spending in the U.S. and low probability of raising guidance, Piper Jaffray projects a limited upside potential for the stock.

A reiteration of guidance would imply a significantly higher fourth-quarter sales outlook, but inventory should remain well in excess of sales, said Murphy. The analyst said she's biased below consensus for sales, but believes EPS can beat her $0.03 estimate supported by enhanced gross margin.

Price Action

E.L.F. Beauty Inc traded sharply lower in the first 30 minutes of the session, reaching its 52-week low. Since then, it's managed to gain some ground, but it is still down around 3 percent.

Related Links:

7 IPOs Coming To Market By Week's End

Sally Beauty Gets A Rating Makeover, Morgan Stanley Downgrades