Estee Lauder Gets Aggressive, Sets Up For Potential Earnings Inflection

Recently, Barclays maintained its Overweight rating on the shares of Estee Lauder, reasoning it was one of the two companies in the CHPC universe that scored high in some criteria, including dividend yield, geographic mix, portfolio mix, story stocks and willingness to adapt to consumer change.

Embarking On Aggressive Actions

Analyst Rupesh Parikh noted that the company has undertaken aggressive actions to position it longer term to offset the ongoing U.S. department store malaise. The analyst highlighted the two on-trend acquisitions with material exposure to specialty-multi beauty retailers and the addition of the existing brands to Ulta Salon, Cosmetics & Fragrance, Inc. ULTA and Sephora.

Valuation Attractive

Oppenheimer also believes the company's shares now trade consistent with its recent historical trough levels on a relative P/E basis. The firm sees support for the multiple from the potential for a stabilizing/improving U.S. constant-currency growth trajectory, a positive EPS growth inflection and a strengthening distribution footprint.

Tweaking Estimates

The firm lowered its 2017 estimates modestly, to account for the recent adverse forex movements and the dilutive impact of the Too Faced acquisition. The firm believes the company would lower its 2017 earnings per share guidance, to reflect these. However, reflecting its latest positive stance, the firm raised its 2018 estimates modestly.

Q2 Expectations

While noting that the company is scheduled to release its second quarter results on February 2, Oppenheimer said it expects the second-quarter constant currency sales growth, excluding the recently concluded Too Faced Acquisition, to trend closer to the low end of the company's guidance. Any weakness on the likely weak print, according to the firm, would prove short-lived.

Oppenheimer's Top Picks In The Space

Oppenheimer now sees an attractive upside case developing for the company. That said, Oppenheimer said Ulta Salon, Cosmetics & Fragrance remains its top pick across its coverage universe. The firm's next top picks, include Estee Lauder and Blue Buffalo Pet Products Inc BUFF.

Rating/Price Target

In all, Oppenheimer upgraded shares of Estee Lauder to Outperform from Perform, while it also introduced a price target of $92.

At the time of writing, Estee Lauder shares were up 0.44 percent at $82.37 and Ulta Salon, Cosmetics & Fragrance was up 0.56 percent at $273.54.