Oppenheimer's case against owning shares of Estee Lauder Companies Inc EL was based on COVID-19 related headwinds but this stance can no longer be justified.
The Analyst: Rupesh Parikh upgraded Estee Lauder's stock from Perform to Outperform with a price target lifted from $160 to $240. The beauty stock is also named as a "top pick" at Oppenheimer.
The Thesis: Oppenheimer downgraded Estee Lauder's stock in late January due to "severe" near-term COVID-19 concerns, Parikh wrote in the note. However, it's now evident this stance underestimated the severity of the pandemic along with a potential recovery timeline.
In fact, the beauty category recovery is recovering faster than expected. L'Oreal said in a company presentation sales were down 34.3% in April and improved to down 19.1% in May and down just 4.6% in June. Shiseido similarly noted in a presentation sales trends bottomed in April and May.
Specific to L'Oreal, management confirmed in late July it is now seeing growth. The company said: "July that we are closing today will be the first positive month in terms of growth again since January."
L'Oreal's management said at an analyst day presentation it is starting to see a recovery in China and expects a double-digit sales growth rate in the fourth quarter and beyond. Naturally, the important market growing at a double-digit rate is a "big positive" to the stock story.
Price Action: Shares of Estee Lauder were trading higher by 1% at $213.52.
© 2022 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.