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Estee Lauder Companies Inc (NYSE:EL) reported Wednesday an "exceptionally strong quarter," but the market's reaction to the downside wasn't justified, according to Deutsche Bank.
The Analyst
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Deutsche Bank's Steve Powers upgraded Estee Lauder from Hold to Buy with an unchanged $157 price target.
The Thesis
Estee Lauder's third-quarter earnings report is highlighted by a 13 percent organic growth rate and management's guidance for an 11 to 12 percent organic and EPS growth in fiscal 2018, Powers said in the note. But investors appear to have punished the stock for three reasons:
- Comps will become increasingly difficult moving forward;
- Makeup growth decelerated from a double-digit growth rate to 5 percent; and
- A disclosure that some of the company's testings did not meet its standards and could result in modification in marketing claims.
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Investors have reason to be "jittery" given Estee Lauder's premium valuation, but the stock's notable underperformance versus the Consumer Staples Select Sect. SPDR (ETF) (NYSE:XLP) is a clear overreaction, the analyst said. The company remains one of the "very few" high-growth and margin accretive companies among coverage which implies Wednesday's selloff represents a good entry point.
Estee Lauder deserves to maintain a premium valuation as the company is "relatively well protected" from structural issues seen in the broader industry, the analyst said.
Price Action
Shares of Estee Lauder were trading higher by 1 percent at $133.66. The stock was trading above the $144 level going into Wednesday's release.
Here's Why Estee Lauder Shares Deserve To Trade At A Premium
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Crypto Whales Are Loading Up — Are You?
New research shows the biggest crypto buyers are back. And this time? They could hold for the possibility that Bitcoin will surpass $100,000 in 2024. You don’t want to miss the next massive crypto bull run like we saw in 2020 and 2021. To know exactly what’s going on and what to buy… Get Access To Benzinga’s Best Crypto Research and Investments For Only $1.