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Bull of the Day: The Estee Lauder Companies Inc. (EL)

Benjamin Rains

Shares of Estée Lauder (EL) have crushed the market in 2019 and touched yet another new high on Tuesday. The high-end makeup firm posted better-than-projected third quarter fiscal 2019 results in May and raised its full-year outlook.

EL Overview

Estée Lauder’s business is made up completely of what it calls “prestige” skin care, makeup, fragrance, and hair care. Today, the historic beauty company’s portfolio includes over 25 brands that are sold around the world. This list includes its namesake Estée Lauder, as well as Michael Kors, Tom Ford Beauty, Tommy Hilfiger, and many more.

The overall prestige beauty industry is in the midst of a boom that includes upstart brands that have been able to expand in a digital and social media-focused retail age, led by the likes of Instagram and others. For instance, music star Rihanna’s Fenty Beauty brand, which she owns with French luxury goods giant LVMH (LVMUY), exploded onto the scene in just a few years to help her become the world’s richest female musician, according to Forbes. “Favorable demographic trends make prestige beauty a desirable, growing industry, and as the best diversified pure play, we are confident in our ability to lead and to gain global share,” EL’s CEO Fabrizio Freda said in prepared remarks last quarter.

Estée Lauder’s chief executive has helped the company impress Wall Street in recent years. The firm has topped our quarterly Zacks earnings estimates for 19 straight periods. Meanwhile, the makeup giant’s quarterly sales results have beaten expectations nine quarters in a row.

Last quarter, EL’s strongest growth drivers were the Asia/Pacific region, along with skin care, its namesake brand, La Mer and Tom Ford Beauty brands, as well as travel retail and global online channels. Plus, as we mentioned at the top, Estée Lauder raised its net sales and EPS guidance for the year.

Price Movement

With all this in mind, it’s easy to see why EL stock is up big over the last several years. Shares of Estée Lauder have climbed 41% since the start of the year, which blows away the S&P 500’s 16% and the Soaps-Cosmetics Market’s 22%—which includes Avon (AVP), e.l.f. Beauty (ELF), Revlon (REV), and others. EL closed Tuesday at $183.95 per share, after touching a brand new 52-week and all-time high of $184.48 in intraday trading.

 

 

 

Outlook & Earnings Trends

Moving on, current Zacks Consensus Estimate calls for the company’s fourth-quarter fiscal 2019 revenue to jump 6.5% to $3.51 billion. This would mark a slowdown from last quarter’s 11% top-line expansion. Meanwhile, Estée Lauder’s full-year revenue is projected to jump 8.1% to $14.79 billion. Peeking further ahead, EL’s fiscal 2020 revenue is expected to climb nearly 7% above our current-year estimate to $15.79 billion in a sign of stable and strong top-line growth.

At the bottom end of the income statement, Estée Lauder’s adjusted Q4 earnings are projected to slip 18% to $0.50 per share. Despite this expected downturn, EL’s full-year fiscal 2019 earnings are expected to jump 15.5% to $5.21 per share. On top of that, the company’s fiscal 2020 EPS figure is projected to surge 10.6% higher than our 2019 estimate.

Along with its expected longer-term earnings growth, Estée Lauder has topped earnings estimates in the trailing four periods by an average of 14%, including a 19% beat last quarter, as part of the larger run of positive surprises. Plus, EL’s fiscal 2019 and 2020 estimates have come up in a big way over the last 60 days.

 

 

Bottom Line

A few of EL’s key valuation metrics are currently a little stretched compared to where they have been over the last five years, which is to be somewhat expected as Estée Lauder stock continues to climb. Yet, Estée Lauder’s longer-term earnings estimate positivity helps the company earn a Zacks Rank #1 (Strong Buy) at the moment.

Some investors might be hesitant to think about buying EL at its new highs, so it might not hurt to wait for a possible pullback. But buying a stock at new highs shouldn’t be dismissed out of hand, because if you owned the stock already one would be extremely happy to see it continue to hit new highs as it has for the last six months. Estée Lauder is also a dividend payer that has raised its payout in recent years. And the Cosmetics industry, which Estée Lauder is part of, rests in the top 11% of our 254 Zacks industries right now.  

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