On Thursday, Bernstein SocGen Group revised its price target on of Estee Lauder (NYSE:EL) shares, lowering it to $100 from the previous $150, while keeping a Market Perform rating on the stock. The adjustment comes as the analyst foresees a slower growth trajectory for the company, projecting about 5% organic growth in the medium to long term.
The new forecast is based on the expectation that Estee Lauder's U.S. business will see an improvement to 2-3% organic growth, compared to an average of approximately 0% over the past decade.
Additionally, the company's China business is anticipated to grow at around 6%, a significant decrease from the 40% compound annual growth rate (CAGR) from fiscal years 2016 to 2021, but an increase compared to the turbulent last three years.
The analyst also highlighted concerns over margin and management uncertainty, suggesting that forecasting a margin path is challenging at this point. The potential for a new management team, possibly with leading external candidates from Beiersdorf or L'Oréal, could lead to increased investment in brand and research and development spending. Consequently, long-term margin forecasts have been significantly lowered.
The current investment case for Estee Lauder is considered unclear, with both long-term growth and profitability depending on the selection of the new CEO. Following the re-rating post the fiscal year 2024 results, there is worry that the stock price may already factor in some of the more optimistic outcomes, despite no assurances that the company's performance will align with these expectations.
In other recent news, Estee Lauder and TOM FORD have seen significant developments with Haider Ackermann being appointed as the new Creative Director for TOM FORD, a move that is expected to bring a fresh and modern approach to the brand's design. Ackermann's appointment is part of TOM FORD's strategic plan to drive the brand's expansion into its next phase.
In terms of financials, Estee Lauder's Profit Recovery and Growth Plan (PRGP) aims to deliver between $1.1 and $1.4 billion in net profit over fiscal year 2024 levels. However, the company's first quarter fiscal year 2025 forecast fell short of analyst expectations. As a result, DA Davidson revised its earnings per share (EPS) estimate for Estee Lauder, reducing it by $1.28, or 30%, to $2.95.
On the analyst front, DA Davidson maintained a Buy rating on Estee Lauder shares, with a set price target of $130.00. Piper Sandler upgraded Estee Lauder's stock from Neutral to Overweight, setting a price target of $114. However, TD Cowen, Morgan Stanley (NYSE:MS), Deutsche Bank (ETR:DBKGn), and Evercore ISI all adjusted their price targets for Estee Lauder, reflecting a cautious outlook due to management transitions and challenging market conditions.
CEO Fabrizio Freda has announced his retirement, initiating a search for a successor. As part of its future plans, Estee Lauder intends to launch the Balmain Beauty brand, expand its luxury portfolio, and build a distribution center in Hainan. These are the recent developments in the company's strategic direction and growth plan.
InvestingPro Insights
As Estee Lauder (NYSE:EL) navigates a challenging growth landscape, real-time data from InvestingPro offers a deeper dive into the company's financial metrics. Estee Lauder's market capitalization stands at a robust $33.15 billion, with a high price-to-earnings (P/E) ratio of 83.84, signaling that investors may expect higher earnings in the future. However, the adjusted P/E ratio for the last twelve months as of Q4 2024 is more moderate at 41.78. This reflects the market's adjustment to the company's earnings potential.
InvestingPro Tips highlight that Estee Lauder has an impressive gross profit margin of 71.67%, showcasing the company's ability to maintain profitability amid cost pressures. Additionally, the company has managed to maintain dividend payments for 29 consecutive years, providing a dividend yield of 2.86% as of the last recorded date, which demonstrates a commitment to returning value to shareholders. These factors could be particularly reassuring to investors considering the company's long-term payout consistency and profitability.
While the analyst report raises concerns about future growth and profitability, Estee Lauder's ability to sustain dividends and maintain high gross profit margins may offer some confidence. For investors seeking more in-depth analysis, there are an additional 12 InvestingPro Tips available, which can be accessed for Estee Lauder at https://www.investing.com/pro/EL, providing a comprehensive view of the company's financial health and market position.
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