Shares of Ulta Beauty ULTA rose 2% in morning trading on Friday after Goldman Sachs GS upgraded the company from “neutral” to “buy.” Goldman Sachs also added the company to its Conviction Buy List.
Analyst Matthew Fassler believes that Ulta has a positive standing after its recent selloff and its “sector-leading” same-store sales growth. Its target price of $310 represents a potential upside of 20% from the stock’s previous closing price.
Ulta stock has been hit recently based on fears that department stores discounting cosmetics and competition from Amazon.com AMZN would hurt its sales.
Fassler, however, does not believe Amazon will hurt Ulta in the near future. “We see AMZN as a potent competitor, but do not believe that its shopping options are comparable to ULTA’s at this time.”
“In the midst of focus on the promotional backdrop, we note our thesis on ULTA has always been predicted on location (convenient), assortment (mass + prestige), and service (low-pressure vs. commission), not on price,” Fassler wrote in an analyst note.
Goldman analysts “expect continued shared gains, reflecting incremental sales captured from department stores, upside from the rollout of new brands and boutiques, and growth in Ulta’s membership program, also a powerful source of valuable data.”
This follows news that Goldman Sachs has also upgraded Wal-Mart WMT today. Fassler said that Wal-Mart is prepared to “simultaneously sidestep the [Amazon] juggernaut” with the increasing demands of e-commerce and technology spending.
It seems that Amazon’s acquisition of Whole Foods WFM last month may not hurt retailers and supermarket stocks as much as analysts previously thought.
ULTA remains a Zacks Rank #2 (Buy), with a VGM score of ‘A.’ The company is set to release its next quarterly earnings on August 24 after the bell.
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