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Here's Why Estee Lauder (EL) Looks Lucrative Post Q2 Earnings

Zacks Equity Research

The Estee Lauder Companies Inc. EL is surely worth a shot, given its robust growth endeavors, which helped the company to put up a superb show in the recently reported second-quarter fiscal 2019. Notably, shares of the company have gained close to 14% since it reported results on Feb 5, which has helped this Zacks Rank #1 (Strong Buy) stock rally 21.5% in the past month compared with the industry’s 20.8% growth. You can see the complete list of today’s Zacks #1 Rank stocks here.

Let’s delve deeper into the factors aiding Estee Lauder’s growth story.



Acquisitions Boosting Top Line

Estee Lauder has made several strategic acquisitions to enhance its portfolio. The acquisitions of BECCA and Too Faced (during first-quarter fiscal 2017) have strengthened its fastest growing prestige portfolio. Notably, sales of BECCA witnessed solid increase in the fiscal second quarter, courtesy of the holiday season. The investment in DECIEM, a fast-growing multi-brand company, is also likely to aid beauty sales. The company’s previous moves in this regard include the buyout of sophisticated Paris-based brand, By Kilian, and the takeover of key prestige skin care brands, RODIN olio lusso and GLAMGLOW. Such acquisitions aided the company to expand its portfolio, apart from helping it attain the respective loyal customer base.

Sturdy Online Business

Estee Lauder has a strong online business and the company expects it to be a major growth engine for the upcoming years. The company is implementing new technology and digital experiences, including online booking for each store appointment, omni-channel loyalty programs and high-touch mobile services. These initiatives and the company’s digital-first mindset have been boosting its online sales, in turn aiding the top line. During the second quarter of fiscal 2019, the company’s e-commerce sales rose in double digits across all channels — brand.com, retail.com and third-party websites. Estee Lauder focuses on widening its global online presence by adding new sites and expanding retailer distributions.

Travel Retail a Solid Driver

Estee Lauder has been strongly focusing on enhancing its travel retail business, which is a major sales driver for the company. Travel retail sales remained sturdy in the second quarter of fiscal 2019, with 13 brands depicting solid growth. Many countries like the U.K. and China witnessed solid growth. Estee Lauder’s travel retail sales have been benefitting from rise in traffic, effective launches, impressive marketing strategies and unique product range. Further, the company expects the travel retail business to gain from rising passenger traffic, favorable fundamentals and higher conversions. Well, the company is committed toward undertaking more efforts to enhance conversions through strategic initiatives.

The Estee Lauder Companies Inc. Price, Consensus and EPS Surprise



The Estee Lauder Companies Inc. Price, Consensus and EPS Surprise | The Estee Lauder Companies Inc. Quote

Estimates Rise on Strong Q2 & Raised View

Estee Lauder continued its stellar record in second-quarter fiscal 2019, which marked the company’s 18th and eighth consecutive quarter of earnings and sales beat, respectively. Also, both metrics advanced year over year. While earnings gained from robust sales and efficient cost management, backed by the company’s Leading Beauty Forward initiative, revenues were fueled by strength across most geographic regions (especially the Asia-Pacific), brands (particularly MAC) and product categories (with skincare standing out). Further, solid growth in travel retail and online channels drove Estee Lauder’s performance.

Management expects growth opportunities to continue in the global prestige beauty industry, which is anticipated to grow 5-6% in fiscal 2019. In fact, management expects to grow ahead of the industry. All these growth drivers encouraged management to raise the sales and earnings outlook for fiscal 2019. The company now expects net sales growth of 5-6%, adjusted net sales growth of 8-9% and adjusted earnings per share of $4.92-$5.00 for fiscal 2019. Consequently, the Zacks Consensus Estimate for fiscal 2019 has moved from $4.84 to $5.01 over the past 30 days.

Clearly, Estee Lauder is set to keep its solid momentum alive.

Looking for More? Check These Consumer Staples Stocks

Nu Skin Enterprises NUS, with long-term earnings per share growth rate of 10.9%, carries a Zacks Rank #2 (Buy).

Nomad Foods NOMD, with long-term earnings per share growth rate of 11%, carries a Zacks Rank #2.

Lamb Weston LW, with a Zacks Rank #2, has long-term earnings per share growth rate of 12%.

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