The shares of this cosmetic company were recently upgraded by JP Morgan to ‘Overweight’.
The Estée Lauder Companies Inc. (EL)
From Argus Weekly Staff Report
We are maintaining our BUY rating on The Estée Lauder Companies Inc. (EL) and raising our target price to $195 from $180. The company continues to benefit from strong demand for high-end beauty products, and about one-third of its brands are posting double-digit revenue growth. We also like its mix of retail stores, e-commerce, and ‘travel retail’ sales at major airports, and its efforts to invest in developing the business.
The company has also steadily raised its dividend.
Management continues to expect FY19 revenue to grow 5%-6%, compared to earlier guidance of 4%-5%. It also projects full-year EPS of $4.92-$5.00, up from a prior $4.73-$4.82. Management often issues conservative guidance at the beginning of the year, which it then raises and surpasses. We are encouraged that the company has raised its guidance following both the first and second quarters of FY19.
Reflecting prospects for growth in e-commerce and travel retail, we are raising our FY19 EPS estimate to $5.27 from $5.20 and our FY20 estimate to $5.90 from $5.75. Our long-term earnings growth rate forecast remains 14%.
We believe that Estee Lauder can continue to post strong growth given ongoing strength in China and increased investment in its makeup brands in the U.S. In our view, EL shares are favorably valued at 31.9-times our revised FY19 EPS estimate. We believe that Estee Lauder’s above-peer-average growth rate, strong return on equity, and demonstrated record of cost cutting justify a higher multiple.
Our $195 target implies a multiple of 37.0-times our FY19 EPS estimate and a potential total return, including the dividend, of 17% from current levels.
Jim Kelleher, CFA, Argus Weekly Staff Report, www.argusresearch.com, 212-425-7500, April 18, 2019