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Bull of the Day: Ulta Beauty (ULTA)

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Ulta Beauty (ULTA) is a Zacks #1 (Strong Buy) that is a leading beauty retailer in the United States. The company offers a wide range of products including cosmetics, fragrances, skincare, hair care, bath and body products and salon styling tools.

The stock had been treading water after CEO Mary Dillon announced she was stepping down. However, after a recent earnings report that blew away expectations, the stock looks ready for all-time highs.

More about Ulta Beauty

The company was founded in 1990 and is headquartered in Bolingbrook, IL. Ulta operates over 1200 stores in every state and has 16,000 full-time employees.

Ulta is valued at about $18 billion and has a Forward PE of 28. The company holds a Zacks Style Score of “A” in Growth, “A” in Momentum, but “D” in Value.

Q1 Earnings

In late May, Ulta surprised to the upside by 113%. They also beat on revenues and raised FY21 adj EPS to $11.50-11.95 v the $9.91 expected. The company saw same store sales up 66% and raised FY21 SSS 23-25% vs the prior 15-17% range.

Ulta commented that they see strong momentum in sales trends, market share gains and consumer sentiment.

The surprise higher on EPS made it the eighth beat out of the last ten quarters. Investors liked the numbers and drove the stock just shy of all-time highs.

Ulta Beauty Inc. Price and EPS Surprise

Ulta Beauty Inc. Price and EPS Surprise
Ulta Beauty Inc. Price and EPS Surprise

Ulta Beauty Inc. price-eps-surprise | Ulta Beauty Inc. Quote

Estimates and Upgrades

Due to the big hike in guidance, estimates are shooting higher. For the current year, estimates have jumped to $11.99 from $9.60 (25%) over the last month. For next year, estimates have climbed 15% over that same time frame.

Since earnings, the stock has seen reiterations of Buy and Outperform ratings, with most analysts lifting price targets. These targets range from the $360-395 levels, with the higher end targets about 20% higher form current trading levels.

A Reopening Trade

Ulta fits the category of the reopening trade as people come back into their offices, stores, restaurants and bars. President Dave Kimbell had the following comments in what they are already seeing:

“As increasing consumer confidence, the relaxation of restrictions, and a desire for newness drive increased engagement with the beauty category, our differentiated model, combined with our ongoing efforts to create meaningful guest connections, position us well to lead through the category recovery.”

With restrictions being lifted and America almost 100% back to normal, Ulta is very well positioned to benefit from the economic atmosphere that will come with the reopening.

Technicals

Ulta has been stuck in a sideways trading range for more than a year. $300 has been the lower end of that range, while the $340 level has found selling.

The earnings move brought the stock above $350, about 4% below all-time highs. Market weakness caused the ULTA to fill the earnings gap, undoubtedly shaking out weak hands.

Investors might get a shot at the 50-day MA at $322. If this level were to break the 200-day is $282

Bottom Line

The stock needed a catalyst after the Mary Dillon announcement and the recent quarter was just that. Even so, the company will need to prove itself when Dillon steps down, but it shouldn’t be too hard with the momentum Ulta will get from the reopening.

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