Analysts: Few Blemishes In Estee Lauder's Q4 Print

Estee Lauder Companies Inc EL delivered a strong fourth quarter, beating Street estimates on earnings and sales, and boosting guidance. Several analysts remained bullish on the stock, noting the beauty company’s seeming ability to defy expectations for slowing growth.

The Analysts

Wells Fargo’s Bonnie Herzog maintained a Market Perform rating but raised the target price from $175 to $190.

Jefferies analyst Stephanie Wissink raised the target price from $165 to $190 while keeping a Hold rating on the stock.

Credit Suisse analyst Michael Binetti reiterated an Outperform rating and raised the target price from $185 to $210.

Bank of America analyst Olivia Tong reiterated a Buy rating and raised the price objective from $205 to $220.

Estee Lauder shares traded around $204.35 at time of publication.

The Theses

Analysts praised the broad-based nature of the company’s strong quarter, with more than 90% of Estee Lauder brands seeing sales growth. But two growth engines did stand out: China and Travel Retail.

The China strength should at some point ebb, several analysts noted. But Herzog pointed out that Estee Lauder is poised for growth in several emerging markets, including India, Turkey and Southeast Asia.

One place the company is struggling a bit, however, is the United States. Estee Lauder management said it expects U.S. growth to stabilize, but Herzog is less optimistic of that.

Nearly Blemish-Free

Still, overall, Estee Lauder’s quarter was “as close to blemish-free as it gets,” wrote Herzog.

Wissink noted strength in Travel Retail, which accounted for 23% of total sales. But overall growth is now undeniable, Wissink said in a note following Monday’s print, and that’s what matters most.

“We now assume momentum carries at multi-year compounded annual growth rates versus our prior logic that had a slowing effect given the cycle,” Wissink wrote.

See Also: Analysts: Estée Lauder's Strength Isn't Just Cosmetic

China Growth

While everyone, including management, seems to expect a China slowdown, it hasn’t materialized.

“While guidance (as usual) factors in a moderation in growth trends for China/travel retail, the company is not seeing any slowdown yet, even in a volatile macro,” noted Binetti. In fact, there’s room for more growth there, he said.

“The company hasn’t even scratched the surface on distribution in Tier 3 or 4 cities in China—suggesting EL still has plenty of runway for growth,” Binetti wrote after the Monday call. “We were also encouraged by EL’s commentary on accelerating trends in other emerging markets (which could shore up any potential deceleration in China if it happens).”

The stock is priced at a premium – but worth it, according to Tong.

“Valuation is clearly elevated, but EL has established itself as a stalwart of above-peer growth while early, meaningful investment in digital capabilities affords agility to pivot to faster-growth areas while mitigating volatility, in our view justifying the meaningful premium,” Tong wrote.