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Estee Lauder Reaches 52-Week High

Zacks Equity Research

Shares of Estee Lauder Companies Inc. (EL) reached a new 52-week high of $75.02 on Nov 22, following the release of solid first quarter fiscal 2014 results on Oct 31. Shares of this cosmetic company eventually closed at $75.01, reflecting a year-to-date return of 24%.

The company’s long-term estimated EPS growth rate is 12.7%. Average volume of shares traded over the last three months came in at approximately 1,585K.

First Quarter Results

On Oct 31, Estee Lauder reported its first quarter fiscal 2014 results. Though adjusted earnings of 76 cents per share declined 3.7% from the year-ago quarter, it beat the Zacks Consensus Estimate by 2.7% and were also ahead of management’s guidance range of 67 cents to 71 cents. We believe global success from innovations and market share gains in Asia and U.K. helped the company to deliver better-than-expected results.

Net sales climbed 6% on the back of higher sales across most geographic regions and major product categories. In the quarter under review, the Hair Care category was strongest with 10% growth followed by Fragrance (6%), Skin Care (5%) and Makeup (4%). Gross margin inflated 80 basis points (bps) to 79.7% in the first quarter of fiscal 2014 owing to higher sales.

Following better-than-expected results in the first quarter, Estee Lauder raised the lower end of its earnings guidance for fiscal 2014 to a range of $2.80 - $2.87, compared to the previously announced 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. Recently, Estee Lauder rolled out the Modern Muse fragrance brand in selected countries in September, 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.

Estee Lauder holds a Zacks Rank #3 (Hold)

Other Stocks to Consider

Other players in the cosmetic industry worth considering include NU Skin Enterprises Inc. (NUS) and L'Oreal SA (LRLCY) with a Zacks Rank #1 (Strong Buy) and Shiseido Company, Limited (SSDOY) with a Zacks Rank #2 (Buy).

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