On Thursday, Piper Sandler adjusted its stance on Estee Lauder (NYSE:EL) stock, upgrading the stock from Neutral to Overweight and setting a price target of $114, up from the previous $95.
The cosmetics giant has been recognized for its strong performance over recent years, but the firm's analyst suggests that with many expected catalysts having already occurred, the stock's growth potential may be more modest going forward.
Estee Lauder has been a consistent outperformer, but Piper Sandler now anticipates a more modest earnings growth of around 3% for the year 2025. This projection is based on the belief that significant growth drivers for the company are now in the past, thus creating tougher year-over-year growth comparisons.
The analyst also notes that Estee Lauder is currently in its most catastrophe-exposed earnings quarter. A significant portion of the company's Global Housing segment, approximately 33%, is located in coastal areas, which may be subject to seasonal weather-related events. This factor is taken into consideration when assessing the company's near-term financial outlook.
Historically, since its initial public offering in 2004, Estee Lauder has provided an average annual return of 14.2%. However, the stock has shown a pattern of remaining relatively unchanged during the period from September 1 to October 31, which is a trend noted by the analyst in their assessment.
In conclusion, while the firm maintains a $200 price target for Estee Lauder, the upgrade to Overweight reflects a positive view on the stock's current valuation, which is trading close to its 5-year average multiple of 11.4 times. The new price target of $114 represents an upward revision and signals the firm's confidence in the stock's investment potential despite the anticipated modest growth.
In other recent news, Estee Lauder has seen several significant developments. The company's Profit Recovery and Growth Plan (PRGP) is on track, with expectations to deliver between $1.1 and $1.4 billion in net profit over fiscal year 2024 levels.
However, Estee Lauder's first quarter fiscal year 2025 forecast fell short of analyst expectations, leading DA Davidson to revise its earnings per share (EPS) estimate for the company, reducing it by $1.28, or 30%, to $2.95.
Analysts from TD Cowen, Morgan Stanley (NYSE:MS), Deutsche Bank (ETR:DBKGn), Evercore ISI, and DA Davidson have adjusted their price targets for Estee Lauder. These adjustments reflect a cautious outlook due to management transitions and challenging market conditions, including declining sales in China and Travel Retail. Despite these challenges, Evercore ISI and DA Davidson maintain a positive outlook on Estee Lauder, keeping an Outperform and Buy rating respectively.
CEO Fabrizio Freda has announced his retirement, initiating a search for a successor. As part of their future plans, Estee Lauder intends to launch the Balmain Beauty brand, expand its luxury portfolio, and build a distribution center in Hainan to improve stock normalization in travel retail. These are recent developments in the company's strategic direction and growth plan.
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