Cosmetics Stocks: Looking Good
Clearly looking good is important to consumers, as stocks of cosmetics companies are going strong even during this anemic economic recovery. All of the stocks discussed here bottomed in January of 2009. Elizabeth Arden (NASDAQ: RDEN), Estee Lauder (NYSE: EL) and Ulta Salon Cosmetics (NASDAQ: ULTA) have come back and are now trading near 5-year highs. Shares of Revlon (NYSE: REV) are trading near a 52-week high.
Since the beginning of the year, the share prices of these four stocks are up between about 26% (Estee Lauder) and more than 75% (Revlon).
L'Oreal, which trades over the counter, also is trading near a 52-week high, but is only up about 12% year-to-date, which is a little above the broader markets.
The real outlier in this sector is Avon Products (NYSE: AVP). Shares have been trading mostly between $27 and $30 since November. That's well south of the 52-week high of $36.20. Up only about 2% since the beginning of the year, the stock has underperformed the broader markets.
Here is a closer look at those cosmetics stocks that are going strong.
Only about 20% of Elizabeth Arden's revenues come from cosmetics. The rest comes from fragrances such as White Diamonds, a best-seller associated with Hollywood legend Elizabeth Taylor, who died earlier this year. The Florida-based company posted a surprise profit in the most recent quarter. Its long-term earnings per share growth forecast is 11.7%. Its forward P/E estimate is less than the trailing P/E ratio, also indicating expected earnings growth. The consensus recommendation of analysts has been to buy RDEN for more than 90 days.
In the most recent quarterly report, this New York-based company attributed strong results to "affluent shoppers in the U.S. and wealth-creation markets, especially in China," said CEO Fabrizio Freda. Estee Lauder has a healthy return on equity of 23.4% and a dividend yield of 0.7%. The long-term earnings per share growth forecast is 11.8%. But the P/E ratio of 27.3 and the PEG ratio of 2.1 suggest the stock is overvalued. Still, the consensus recommendation of analysts is to buy EL, and it has been for more than 90 days.
Revlon is 78% owned by Ron Perelman, who tried to take the company private in October of 2009. About 60% of its revenues are generated in the United States, with Walmart (NYSE: WMT) as the biggest customer. Back in February, this New York-based company received a nice bump in its share price following better-than expected 2010 results. Shares are trading at 12.3 times earnings estimates, and Revlon has a dividend yield of 0.9%. Analysts have on average recommended buying REV for the past 60 days.
Ulta Salon Cosmetics
Ulta provides salon products and services at nearly 350 locations in 38 states. Its next quarterly report is scheduled for June 7; analysts expect to see 25.8% growth of per-share earnings and 15.9% revenue growth, compared to year-ago results. Ulta's return on equity is 19.8%, its long-term earnings per share growth forecast is 22.8%, and it reports no long-term debt. This stock also has a consensus buy recommendation.
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