Evercore ISI has adjusted its outlook on Estee Lauder (NYSE: NYSE:), reducing the price target to $130 from $180 while maintaining an Outperform rating on the stock.
The adjustment comes amid expectations of a continued challenging market in China and Asia Travel Retail, which are not anticipated to improve from their current low levels.
The firm’s fiscal 2025 guidance reflects a cautious stance due to several factors, including a further decline in Hainan duty-free sales following the anniversary of the daigou crackdown, and a contraction in physical store sales which likely led to deleverage.
Despite a downturn in mass beauty product sales online, prestige beauty products have sustained a 5% growth in July, indicating that the feared trading down in China has not materialized.
Estee Lauder is currently undergoing significant changes, including a C-suite transition and a restructuring plan aimed at achieving $1.1-1.4 billion in savings net of reinvestment. The company is also working on diversifying its sales channels, with positive developments reported on Amazon (NASDAQ:) in the U.S. and Douyin in China.
Historically, Estee Lauder has maintained mid-teen profit margins post-Great Recession, and the analyst suggests that the company should be able to return to these levels, given its gross margins in the mid-seventies.
In other recent news, Estee Lauder’s fourth-quarter fiscal year 2024 results exceeded expectations, particularly in travel retail, which saw an increase of over 40% due to re-stocking efforts in Asian markets.
However, Estee Lauder’s forecast for the first quarter of fiscal year 2025 fell short of analyst expectations. DA Davidson has revised its earnings per share (EPS) estimate for Estee Lauder, reducing it by $1.28, or 30%, to $2.95.
Estee Lauder reported a decline in organic sales and adjusted operating margin for fiscal year 2024 but outlined a strategic plan for future growth. The company is focusing on high-end fragrances, online channels, and precision marketing. Despite challenges in the Chinese and Asian travel retail markets, the company saw growth in other regions and is implementing its Profit Recovery and Growth Plan (PRGP).
InvestingPro Insights
As Estee Lauder (NYSE: EL) navigates market challenges and implements strategic changes, investors are keeping a close eye on its financial health and stock performance. According to InvestingPro data, Estee Lauder holds a market capitalization of approximately $33.31 billion. The company’s stock is trading at a high earnings multiple with a P/E ratio of 53.38, reflecting investor expectations for future earnings growth. Despite recent revenue contraction, Estee Lauder boasts impressive gross profit margins, which stood at 70.77% over the last twelve months as of Q3 2024. This aligns with Evercore ISI’s observation of the company’s historically strong profit margins post-Great Recession.
InvestingPro Tips highlight that Estee Lauder has consistently raised its dividend for the last 29 years, indicating a strong commitment to returning value to shareholders. Additionally, the firm’s ability to maintain high gross profit margins is a testament to its pricing power and operational efficiency. For investors seeking more comprehensive analysis, there are over 10 additional InvestingPro Tips available for Estee Lauder, which can be found on the platform.
While the company’s stock price has faced significant headwinds, with a 35.38% decline over the last six months, Estee Lauder’s commitment to shareholder returns and its strategic initiatives to diversify sales channels and cut costs may position it for a rebound as market conditions evolve. Investors interested in Estee Lauder’s future prospects would benefit from monitoring these developments closely, with further insights available through InvestingPro.
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