By Sam Boughedda
Piper Sandler analysts upgraded e.l.f. Beauty, Inc. (NYSE:ELF) to Overweight from Neutral, raising the firm's price target to $46 from $35 in a research note released Tuesday, stating the company has "cracked the Gen Z code."
They told investors they are upgrading the stock following their Fall Teen Survey that showed "not only clear and consistent preference for e.l.f. products, but also notable share gains across all income groups."
"Our Fall Teen Survey showed a 20% Y/Y increase in the total beauty wallet for female teens, with makeup specifically up 28% Y/Y. Additionally, teens wearing makeup every day grew to the highest level seen since Fall 2017, making us comfortable that a good portion of the strength in makeup demand seen this summer from the reopening is likely to persist in this cohort," the analysts explained.
However, they admitted that Piper Sandler has "been on the wrong side of this trade in 2022 (stock +13% YTD)," stating they had reasonable hesitations around the company's ability to sustain top-line momentum following summer makeup recovery and margin expansion.
"Results from our survey give us greater comfort in demand persisting, and with growing traction amongst the upper income groups as well as increasing emphasis on the digital channel (which has resonated quite well with Gen Z), we think ELF can not only continue growing its top line in the double digits, but also take advantage of margin expansion opportunities and reach 20%+ EBITDA% over the coming years,"
wrote the analysts.
ELF shares rose 6% in Tuesday's session.