Ulta Beauty Is Queen Of Its Category In The U.S., But Wait For A Better Entry Point

Anthony Chukumba of Loop Capital started coverage of Ulta Beauty Inc ULTA with a Hold rating and $285 price target, saying the company’s valuation fully reflects its attractive near- and long-term prospects.

Chukumba called Ulta Beauty the definitive “category killer” in the U.S. beauty retailing business through its “All Things Beauty, All in One Place” strategy.

The Sector

The analyst believes beauty industry growth, market share expansion, continued roll out of in-store prestige boutiques, customer loyalty program and e-commerce growth should position Ulta Beauty for above retail industry average comp gains.

Analyst's Commentary

Chukumba also bets on the company’s attractive square footage growth prospects via expanding its suburban reach. In fact, management believes Ulta Beauty can eventually operate 1,700 stores in the United States, versus fewer than 1,000 today.

That said, Ulta Beauty is currently trading at 33.6x the analyst’s F2017 EPS estimate, a significant premium to the average valuation of its closest comparable companies.

“We would wait for a more attractive entry point before becoming more constructive on the stock,” Chukumba wrote in a note.

At last check, shares of Ulta Beauty were up 0.34 percent to $273.75.