Estee Lauder Remains Neutral - Analyst Blog
January 14 2014 - 5:55PM
Zacks
On Jan 13, we reiterated our Neutral recommendation on cosmetics
retailer Estee Lauder Inc. (EL). While the company
has been delivering solid results, the continued slowdown in the
European economy remains a concern.
Why Maintained at Neutral?
Estee Lauder posted better-than-expected results in all the last
four quarters. Organic sales growth, product innovation and cost
savings measures have remained company’s strong points. However,
increased input costs and macro-economic headwinds have remained
the headwinds.
Moreover on Oct 31, 2013, Estee Lauder raised the lower end of
its earnings guidance for fiscal 2014 to a range of $2.80–$2.87,
compared to the range of $2.74–$2.87. The company, however,
maintained its sales growth guidance of 6%–8% increase in constant
currency.
Overall, we are encouraged by Estee Lauder’s booming travel
retail business. Rising air traffic is expected to boost sales in
the Travel Retail segment in the upcoming quarters. The company has
also witnessed a rise in online sales, which is impressive.
Moreover, the company’s continuous product innovation helps it to
maintain market share amid difficult conditions.
Innovation remains an integral part of the company and helps it
to drive profitable growth. In Sep 2013, Estee Lauder rolled out
the Modern Muse fragrance brand in selected countries, which became
a bestseller at Harrods in the U.K. and was among the top 10 women
prestige fragrances in the U.S. Other successful fragrances
launched during the quarter include the Michael Kors Collection,
Tory Burch and Zegna Uomo, all of which were well received.
However, the difficult consumer spending environment remains a
concern. Slow job growth, high interest rates and tightened credit
availability continue to hurt costumer discretionary spending. The
persistently sluggish European economic conditions also create an
overhang.
Moreover, Estee Lauder’s close peers like Elizabeth
Arden Inc. (RDEN) and Avon Products Inc.
(AVP) make frequent strategic acquisitions and alliances to expand
their market. However, we see no such strategic alliances for Estee
Lauder.
Estee Lauder holds a Zacks Rank #3 (Hold)
Other Stocks to Consider
A better-ranked stock in the same industry that looks attractive
at the current levels is Nu Skin Enterprises Inc.
(NUS) sporting a Zacks Rank #1 (Strong Buy).
AVON PRODS INC (AVP): Free Stock Analysis Report
ESTEE LAUDER (EL): Free Stock Analysis Report
NU SKIN ENTERP (NUS): Free Stock Analysis Report
ELIZABETH ARDEN (RDEN): Free Stock Analysis Report
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