This cosmetics company beat analysts’ estimates by $0.08 last quarter and 22 analysts have increased the company’s earnings forecasts for this year.
The Estée Lauder Companies Inc. (EL)
From Argus Weekly Staff Report
We are raising our rating on The Estée Lauder Companies Inc. (EL) to BUY from HOLD and setting a target price of $125. 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. Estee Lauder has invested heavily in its businesses in recent years and continues to benefit from strong demand for high-end beauty products. 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. We believe that Estee Lauder can reach its targets of 6%-8% local-currency revenue growth and double-digit earnings growth over the next three years. The company has also steadily raised its dividend, which currently yields above 1%.
We are also raising our long-term rating to BUY.
In 1Q18, the company projects 9%-10% revenue growth and earnings of $0.94-$0.97 per share. Management expects FY18 revenue to grow 8%-9% on a reported basis and 7%-8% in constant currency. It projects full-year EPS of $3.87-$3.94. The consensus EPS estimate prior to the release was $3.77. Management often issues conservative guidance, which it then surpasses. Reflecting management’s guidance and the company’s history of positive earnings surprises, we are raising our FY18 EPS estimate from $3.80 to $4.01. For FY19, we are setting an estimate of $4.42. Our long-term earnings growth rate forecast remains 14%.
In our view, EL shares are favorably valued at 26.6-times our revised FY18 EPS estimate, below the five-year average of 31.0. 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 $125 target implies a multiple of 31.2-times our revised FY18 earnings estimate, and a potential total return of 19% including the dividend.
Jim Kelleher, CFA, Argus Weekly Staff Report, www.argusresearch.com, 212-425-7500, August 25, 2017