Zacks Industry Outlook Highlights: Estee Lauder, Coty, Nu Skin and Inter Parfums
For Immediate Release
Chicago, IL – June 8, 2021 – Today, Zacks Equity Research discusses Cosmetics, including The Estee Lauder Companies Inc. EL, Coty Inc. COTY, Nu Skin Enterprises, Inc. NUS and Inter Parfums, Inc. IPAR.
Link: https://www.zacks.com/commentary/1669317/4-cosmetics-stocks-stealing-attention-despite-industry-woes
The Zacks Cosmetics industry’s near-term prospects appear to be eclipsed by pandemic-related issues such as reduced store and salon traffic, a disrupted travel retail network, supply-chain constraints and lower makeup usage due to fewer social outings. Moreover, increased spending on advertising and promotion, among other efforts, to battle industry competition, poses threats to margins.
On the brighter side, demand for skincare and other personal care products has been rising owing to consumers’ growing consciousness toward wellness. In this regard, companies’ focus on bringing newness, product launches and other brand-enhancement endeavors are in tandem with consumers’ evolving demand. Such upsides bode well for players like The Estee Lauder Companies, Coty, Nu Skin Enterprises and Inter Parfums.
About the Industry
The Zacks Cosmetics industry includes companies providing beauty and personal care products. Players in the industry mainly manufacture, distribute, sell and market skin care, fragrance, makeup and hair care products.
Many firms in the space market via sales representatives, whereas some sell products through retailers, independent and chain drug stores and pharmacies, upscale perfumeries, department stores and beauty salons, among others. Companies also operate through retailer websites, third-party distributors, in-flight and duty-free shops.
Some of the products offered by the industry participants include moisturizers, serums, toners and cleansers under skincare; perfume sprays, colognes, candles and soaps under fragrance; lipsticks, mascaras, powders, eye shadows, foundation and nail polishes under makeup; and shampoos, conditioner and hair color products under hair care.
3 Trends Shaping the Future of the Cosmetics Industry
Pandemic-Related Woes: Companies in the cosmetics space have been facing soft store traffic owing to the pandemic-led social distancing trends. Additionally, temporary store closures due resurgence of cases, mainly in Europe, has affected revenues of companies operating in the region. Moreover, usage of masks and reduced social outings have curbed the use of several cosmetic products.
Other than this, pandemic-led limitations on traveling have hit the travel retail network hard, which plays an important role in boosting the top line of a number of cosmetic players. Disturbances in supply-chain network have also been a barrier.
The uncertainty surrounding the impacts of COVID-19 keeps the cosmetics space under pressure. On the brighter side, strength in online sales has been offering respite to many cosmetic players who have been focused on bolstering their online operations.
Favorable Demand for Personal Care Products: Companies have been witnessing rising demand for skincare, hair care and other personal care products, given consumers’ growing consciousness toward wellness. Also, increased at-home grooming has stimulated demand for such products. In fact, elevated consumer awareness has stimulated demand for organic skincare and “clean beauty” products.
Such trends have kept cosmetic players on wheels in terms of coming up with the necessary innovation and product launches. Industry participants have also been fueling brand portfolio through prudent buyouts and alliances. Focus on resonating well with consumers’ evolving preferences bodes well for players in the cosmetics industry.
Pressure on Margins: The cosmetics industry is extremely competitive, with players contending in terms of product launches, expansions, alliances and other brand-enhancement endeavors. Also, these companies indulge in heavy research and development to come up with new products alongside undertaking increased levels of advertising and promotions to stay relevant.
This, in turn, comes at the cost of margins. Apart from this, availability of cheaper substitutes poses threats to players offering luxury products. People may refrain from buying high-priced products, given the difficult consumer environment.
Zacks Industry Rank Indicates Bleak Prospects
The Zacks Cosmetics industry is housed within the broader Zacks Consumer Staples sector. The industry currently carries a Zacks Industry Rank #186, which places it in the bottom 26% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates dull near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
The industry’s position in the bottom 50% of the Zacks-ranked industries is a result of negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually becoming less confident about this group’s earnings growth potential. Since the beginning of March 2021, the industry’s consensus earnings estimate for 2021 has dropped 4%.
Before we present a few stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.
Industry Versus Broader Market
The Zacks Cosmetics industry has outperformed the Zacks S&P 500 composite as well as the broader Zacks Consumer Staples sector over the past year.
The industry has surged 40.5% over this period, compared with the S&P 500’s growth of 35.2%. Meanwhile, the broader sector rallied 21.6%.
Industry's Current Valuation
On the basis of forward 12-month Price-to-earnings (P/E) ratio, which is commonly used for valuing consumer staples stocks, the industry is currently trading at 46.27X compared with the S&P 500’s 21.85X and the sector’s 20.96X.
Over the past five years, the industry has traded as high as 48.16X, as low as 19.65X, and at the median of 26.81X.
4 Cosmetic Stocks to Keep a Close Eye on
Inter Parfums: Shares of this Zacks Rank #1 (Strong Buy) company have surged 33.2% in the past six months. The manufacturer, distributor and marketer of a wide range of fragrance and fragrance products has been benefiting from its focus on innovation and product launches. The company has been making efforts to augment growth and has been exploring potential license deals with different brands in this respect.
The company delivered robust first-quarter 2021 results last month, wherein sales growth was greater than management’s expectations. Management stated that Inter Parfums’ business is particularly sturdy in regions where lockdowns have been eased, stores have reopened and activities have reverted to the old normal, especially in Asia and North America.
Management expects net sales of roughly $700 million for 2021, which suggests an increase from nearly $539 million delivered in full-year 2020. Markedly, Inter Parfums has a trailing four-quarter earnings surprise of 27.3%, on average. The consensus estimate for its current fiscal-year earnings has increased 1.2% in the past 30 days.
You can see the complete list of today’s Zacks #1 Rank stocks here.
Nu Skin Enterprises: This Zacks Rank #2 (Buy) company is focused on empowering its network of sales leaders. Also, impressive product launches of this developer and distributer of premium cosmetics, beauty, personal care and wellness products have been yielding favourable results. Apart from this, the company’s digital business has doing well, especially amid the pandemic.
Importantly, the consensus mark for Nu Skin’s current fiscal-year bottom line has jumped 7.8% over the past 30 days. Moreover, the company has a trailing four-quarter earnings surprise of 18.8%, on average. Impressively, shares of Nu Skin have rallied 17.7% in the past six months.
Estee Lauder: Estee Lauder has been gaining on strength in the skin care category. Further, the company’s online business has been performing well and is likely to remain a major growth engine. In fact, Estee Lauder’s brand teams have been fully committed to enhancing consumer experiences online – especially amid the pandemic.
Apart from this, strong cost-saving measures have been aiding margins. This Zacks Rank #3 (Hold) company has an estimated long-term earnings growth rate of 10.7%. Further, this manufacturer and marketer of skin care, makeup, fragrance and hair care products has seen the consensus mark for current fiscal earnings move north by 3.7% in the past 60 days. Markedly, shares of this New York-based company have rallied 24% in the past six months.
Coty: This manufacturer, marketer and distributor of beauty products has surged 17.2% in the past six months. The Zacks Consensus Estimate for Coty’s current fiscal earnings has remained unchanged in the past 30 days. The company has been benefiting from focus on core priorities, which include stabilizing Consumer Beauty make-up brands and mass fragrances; accelerating luxury fragrances and setting up Coty as a core player in prestige make-up; establishing a skincare portfolio in prestige and mass channels; strengthening e-commerce and Direct-to-Consumer capabilities; growing presence in China via Prestige and certain Consumer Beauty brands; as well as setting Coty as an industry leader in sustainability.
Further, this Zacks Rank #3 company has been bolstering its portfolio through prudent partnerships. Also, focus on optimizing cost structure bodes well.
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The Estee Lauder Companies Inc. (EL) : Free Stock Analysis Report
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