Analyst Remains Buyer Of Ulta Beauty As Q3 Earnings Release Nears

Ulta Beauty Inc ULTA's stock peaked during the summer months and has since come under pressure amid competitive threats and the potential for Amazon.com, Inc. AMZN to flex its muscles and enter the beauty space.

The Analyst

KeyBanc Capital Markets' Jason Gere maintains an Overweight rating on Ulta's stock with an unchanged $270 price target.

The Thesis

Ulta is scheduled to report its third quarter results on Thursday and the retailer is expected to demonstrate that its fundamentals remain "intact," Gere said in a note. The company is expected to report a 10-percent comp increase and 20-percent earnings per share growth, which could prove to be sustainable over the longer-term due to:

• A differentiated merchandising offering;
• A best-in-class loyalty reward program;
• Effective marketing efforts that boosts consumer awareness; and
• An overall strong omni-channel profile.

Looking forward to the fourth quarter, a 10-percent comp rate is also "achievable," partly due to a strong Black Friday performance, the analyst said. Specifically, dozens of people were observed waiting in line at various stores on Black Friday as opposed to department store traffic which was "modest with no step up in deals."

Price Action

While Ulta's stock may not return to its historical highs the valuation at current levels is below its historical 35 times P/E multiple, which may be attributed to "overplayed" concerns from Amazon.

Shares of Ulta have lost more than 17 percent since the start of 2017.

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