Estée Lauder (EL) Stock Trades Up, Here Is Why

Petr Huřťák /
2024/03/28 2:21 pm EDT

What Happened:

Shares of beauty products company Estée Lauder (NYSE:EL) jumped 6.6% in the afternoon session after Bank of America upgraded the stock's rating from Neutral to Buy and raised the price target from $160 to $170. The new price target represents a potential 10% upside from where shares traded when the upgrade was announced. The analyst added, "In our view, EL has lost focus on product upgrades and innovation in recent years...Now, however, Estée Lauder is rolling out new derma lines, increasing its marketing for its Clinique and Estée Lauder (EL) brands, freshening up the MAC and Bobbi Brown brands in makeup, and initiating a marketing push on its high-end brands like LeMer. The restructuring mix, supply chain efficiencies, and sales leverage now puts $6 EPS in play for FY26 even if China only grows by single digits."

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What is the market telling us:

Estée Lauder's shares are not very volatile than the market average and over the last year have had only 7 moves greater than 5%. In context of that, today's move is indicating the market considers this news meaningful, although it might not be something that would fundamentally change its perception of the business. 

The biggest move we wrote about over the last year was about 2 months ago, when the stock gained 19.4% on the news that the company reported second-quarter results that blew past analysts' EPS expectations. Its operating margin also outperformed Wall Street's estimates. 

On the other hand, its earnings forecast for the next quarter missed analysts' expectations, and its full-year earnings guidance missed Wall Street's estimates. The company did provide some silver lining, though, projecting a "return to double-digit organic net sales growth in the second half of fiscal 2024." In addition, Estee Lauder announced a restructuring plan as part of its profit recovery efforts, which will result in a 3-5% headcount reduction. Overall, the results still seemed fairly positive given that outlook for a topline recovery.

Estée Lauder is up 6% since the beginning of the year, but at $154.06 per share it is still trading 40.4% below its 52-week high of $258.48 from April 2023. Investors who bought $1,000 worth of Estée Lauder's shares 5 years ago would now be looking at an investment worth $937.55.

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