2 Estee Lauder Analysts Issue Upgrades After Q4 Miss: 'It Makes Sense To Look Longer-Term'

Estee Lauder Companies Inc EL reported fourth-quarter and full-year fiscal 2020 results Thursday that disappointed investors — prompted two analysts to turn bullish on the beauty stock. 

The Estee Lauder Analysts: D.A. Davidson analyst Linda Bolton Weiser upgraded Estee Lauder from Neutral to Buy with a price target lifted $183 to $231.

Morgan Stanley analyst Dara Mohsenian upgraded Estee Lauder from Equal-weight to Overweight with a price target lifted from $196 to $233.

DA Davidson Says The Worst Is Over: Estee Lauder reported "worse-than-feared" fourth-quarter results, Bolton Weiser said in a note. 

The cosmetics company posted a constant currency fourth-quarter loss of 50 cents per share against a Street estimate for a 19-cent-per-share loss, and sales of $2.43 billion missed the $2.45-billion Street estimate. 

The operating loss of $228 million was also worse than the $93-million loss the Street was expecting, the analyst said, adding that the gross margin fell 840 basis points year-over-year to 68.5% against expectations for a 72.3% gross margin. 

Estee Lauder's guidance for the fiscal first quarter of 2021 was also disappointing, she said. 

The company expects to earn 80-85 cents per share on revenue in a range of $3.389 billion to $3.428 billion versus expectations of $1.15 on revenue of $3.491 billion, Bolton Weiser said. 

The reason to be bullish moving forward is that Estee Lauder's guidance lowers the risk of earnings disappointments, the analyst said. 

The gross margin should move higher going forward, as manufacturing capacity is running at near-normal levels, the analyst said.

E-commerce as a percentage of sales in the fourth quarter was around 40%, and the margin-accretive online business should grow in China and the U.S., she said. 

Estee Lauder is prioritizing its e-commerce business, including reinvesting cost savings in digital capabilities and omnichannel, according to D.A. Davidson. 

Morgan Stanley Says It's Not Looking Back: Estee Lauder's fourth-quarter report and guidance were "disappointing" and warranted the 7% decline in the stock, Mohsenian said in an upgrade note.

Now is not the time to look in the rearview mirror, as the company highlighted multiple growth drivers, the analyst said. 

The prior bullish case was based on Estee Lauder's moves over the last 10 years to focus on high-growth, high-margin categories like skin care, e-commerce, travel retail and the Chinese market, he said.

In the long run, this is a valid thesis and it "remains on track," Mohsenian said. 

"Net, with vaccine progress on the horizon, and the S&P 500 at an all-time high, we think it makes sense to look out longer-term at EL." 

EL Price Action: Estee Lauder shares were up 4.63% at $207.45 at last check Friday. 

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Posted In: BeautyChinaCoronavirusCosmeticsDA DavidsonDara Mohseniane-commerceLinda Bolton WeiserMorgan StanleyAnalyst ColorEarningsNewsGuidanceUpgradesPrice TargetAnalyst Ratings