Beauty retailer Ulta Beauty Inc ULTA is "well-positioned" to take advantage of favorable COVID-19-related trends in self-care, value items and a shift to online buying, according to BofA Securities.
The Analyst: Lorraine Hutchinson initiated coverage of Ulta Beauty with a Neutral rating and $230 price target.
The Thesis: Ulta Beauty is well-positioned to show growth over the coming years, although pre-COVID-19 expectations are unlikely to be met, Hutchinson said in a Wednesday initiation note. (See her track record here.)
The retailer should be able to show a low double-digit EPS growth rate by 2022 and 7% sales growth, along with modest margin leverage and the resumption of a share buyback program, the analyst said.
Ulta posted five-year a EPS compounded annual growth rate of 30% prior to 2019 due to "mega-trends" that supported an 11% average comp and 13% annual growth in square footage, she said.
Unfortunately, the pandemic "delayed some innovation," and expectations for a longer recovery in sales per square foot and gross margin warrants a neutral stance on the stock, Hutchinson said.
No major beauty trend exists that would justify an acceleration in comp growth and allow for an earnings beat, the analyst said.
Ulta's stock is trading at a 20 times P/E multiple and there is "less room" for a multiple expansion amid an absence of any notable drivers, according to BofA.
ULTA Price Action: Shares of Ulta Beauty were trading lower by 0.8% at $214.46 at last check Wednesday.
Related Links:
Ulta Beauty CEO Highlights Pent-Up Demand, Expects Full Reopening In June
Beauty Sector Looks Promising Amid COVID-19
© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
date | ticker | name | Price Target | Upside/Downside | Recommendation | Firm |
|---|
Trade confidently with insights and alerts from analyst ratings, free reports and breaking news that affects the stocks you care about.
