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Beauty Stocks In The Eye Of One Sell-Side Beholder

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Beauty Stocks In The Eye Of One Sell-Side Beholder

BMO Capital Markets has started coverage of six beauty and consumer product stocks by assigning an Outperform rating for Spectrum Brands Holdings, Inc. (NYSE: SPB), Ulta Salon, Cosmetics & Fragrance, Inc. (NASDAQ: ULTA) and e.l.f. Beauty Inc (NYSE: ELF).

That said, the brokerage prefers be on the sidelines on Newell Brands Inc (NYSE: NWL) and Sally Beauty Holdings, Inc. (NYSE: SBH), rating them Market Perform. The company wrapped up its beauty coverage with an initiation of Estee Lauder Companies Inc (NYSE: EL) at Underperform.

Spectrum: Outperform, $147 Price Target

Analyst Shannon Coyne believes the recent pullback in Spectrum Brands shares has created a buying opportunity. The analyst highlighted considerable white space, high barriers to entry coupled with favorable demographic and macro trends as positives for the stock on which Coyne has a $147 price target.

“While we recognize the potential overhang in the stock based on near-term company-specific and external headwinds, we can't ignore the company's 10 percent free cash flow yield compared with peers at 4–6 percent and its 30 percent discount on a price/cash flow basis,” Coyne wrote in a note.

Ulta Salon: Outperform, $295

In addition, Coyne is bullish on UIta Salon with a price target of $295, on favorable industry dynamics, target demographics, and category growth (+MSD), near-term defensive moats, brick and mortar whitespace and strong management team.

ELF: Outperform, $36

Further, Coyne’s Outperform thesis on ELF is based on the company’s unmatched 20 percent sales growth algorithm, value proposition (retail for <$6), loyal and attractive consumer base, and considerable white space in existing and new accounts. The analyst has a $36 target price on ELF shares.

Newell: Market Perform, $48

For Newell Brands, Coyne noted that the stock’s valuation gap versus its peer group has narrowed since the beginning of 2016. This balances strong legacy Newell business and momentum in the Jarden businesses against significant integration risk and a levered balance sheet in a rising rate environment. Coyne set $48 price target on Newell shares.

Sally Beauty: Market Perform, $29

The analyst is also Market Perform on Sally Beauty, with $29 price target as she believes FY 2017 will be another year of investment. The analyst would become more constructive on the stock upon signs of emerging traffic growth at Sally Beauty and greater visibility into double-digit EPS growth in 2018.

Estee Lauder: Underperform, $72

Meanwhile, Coyne is bearish on Estee Lauder, with a target price of $72, citing possibility of another cut in EBIT margin guidance on increasing costs to drive market share.

“Importantly, our proprietary analysis suggests that Estée Lauder is falling behind in social media despite investments made and a large presence suggesting deterioration in heritage-brand and MAC market share (67 percent of sales excluding MAC International),” Coyne added.

At Time Of Writing

  • Spectrum Brands was up 1.14 percent to $121.97.
  • Ulta Salon had climbed 2.45 percent to $262.99.
  • ELF had gained 2.82 percent to $29.56.
  • Newell Brands were down 0.88 percent to $46.27.
  • Sally Beauty were up 0.22 percent to $27.01.
  • Estee Lauder had fallen 1.26 percent to $76.60.

Latest Ratings for EL

DateFirmActionFromTo
Nov 2019MaintainsNeutral
Nov 2019MaintainsBuy
Nov 2019MaintainsOutperform

View More Analyst Ratings for EL
View the Latest Analyst Ratings

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