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Top Picks Daily Alert - 12/21/18

In the past 30 days, six analysts have raised their EPS estimates for this beauty retailer.

In the past 30 days, six analysts have raised their EPS estimates for this beauty retailer. The company is expected to grow at an annual pace of 19.35% over the next five years.

Ulta Beauty, Inc. (ULTA)
From Hendershot Investments

Ulta Beauty, Inc. (ULTA) is the largest beauty retailer in America with 1,124 convenient locations in 48 states offering salon services for hair, nails, skin and eyebrows plus more than 20,000 products from over 500 beauty brands.

During the past five years, Ulta Beauty has generated stunning, profitable growth with sales compounding 22% annually and EPS growing at a 30% annual clip. Ulta Beauty’s same store sales growth exceeded 11% during the past five years, well outpacing its brick and mortar peers. After-tax profit margins have steadily expanded from 7.6% in fiscal 2014 to 9.4% in fiscal 2018.

The company added nearly 400 stores during the past five years, while expanding its retail sales per square foot from $407 to $548. Ulta Beauty maintains an alluring balance sheet with no long-term debt thanks to its strong cash flow generation with free cash flow having grown more than six fold over the last five years to $339 million last year.

Management has been using the cash to buy back shares at attractive valuations. Ulta Beauty issued comparable sales and earnings per share targets for fiscal 2019, 2020 and 2021. The company expects to achieve comparable sales growth in the range of 5% to 7%, and grow earnings per share in the mid to high teens percentage range, as it expects to achieve modest operating margin expansion each year.

Ulta’s U.S. store target is 1,500 to 1,700 stores, with the company planning to open 80 stores in 2019, 75 stores in 2020 and 70 stores in 2021. Investors shopping for attractive long-term returns should consider Ulta Beauty, a HI-quality market leader, with profitable growth, a strong balance sheet and lovely cash flows.

Ingrid R. Hendershot, Hendershot Investments,, 703-361-6130, December 18, 2018