On Thursday, JPMorgan (NYSE:JPM) updated its stance on ULTA Salon (NASDAQ: ULTA), increasing the price target to $600 from the previous $535 while maintaining an Overweight rating on the shares. The firm highlighted ULTA's addition to its Analyst Focus List as a promising growth investment, citing several factors that could drive the company's performance.
The investment firm anticipates a potential rise in ULTA's fourth-quarter earnings for 2023, suggesting that the current full-year 2024 estimates are attainable and that projections for 2025 may be too conservative. JPMorgan raised its comparable sales forecast for the fourth quarter to 3.3%, aligning with its Nielsen lateral data, compared to the Street's 1.8%, with an earnings per share (EPS) estimate of $7.52, which is in line with consensus.
JPMorgan expects an uptick in the cosmetics category, which accounts for roughly 41% of ULTA's sales, throughout 2024. This follows a period of softer growth in the category, with low single-digit increases in the second quarter and flat performance in the third quarter of 2023. The firm notes that ULTA is moving beyond the impact of the Fenty brand's popularity surge following Rihanna's Super Bowl performance on February 13, 2023, and the peak impact from Sephora's openings in Kohl's (NYSE:KSS) stores. The addition of new brands like Charlotte Tilbury, LUSH, and Sol de Janeiro to ULTA's offerings is also expected to boost sales.
Countering the bearish view that ULTA may be over-earning, JPMorgan argues that the company is actually under-earning, with potential for long-term structural margins around 16% compared to the Street's expectations of 14.5% in FY24 and FY25. The firm also points to ULTA's valuation, trading at 17 times JPMorgan's above-Street earnings forecast for 2025, and notes that the company is well-positioned to benefit from wage growth correlations and its own market share gains without significant risk from deflation and tariff or freight concerns.
InvestingPro Insights
ULTA Salon's financial health and market performance have been areas of focus for investors and market analysts alike. With a robust market capitalization of $25.57 billion, ULTA stands as a significant player in the retail industry. Its Price to Earnings (P/E) ratio, a key indicator of market expectations about the company's growth, is currently at 21.15, pointing to a premium valuation compared to the market average. The Price to Book (P/B) ratio, which compares a company's market value to its book value, is notably high at 12.61 for ULTA, suggesting that investors are willing to pay more for each dollar of ULTA's net assets.
When it comes to profitability, ULTA has shown a strong performance over the past three months, with a price total return of 26.79%. This aligns with the positive sentiment from JPMorgan's recent price target increase. Additionally, ULTA's gross profit margin stands at a healthy 42.82%, reinforcing the company's ability to maintain profitability despite market fluctuations.
InvestingPro Tips for ULTA highlight the company's financial stability, with liquid assets surpassing short-term obligations and a moderate level of debt. This financial resilience, coupled with analysts' predictions of profitability for the year, offers a reassuring picture for investors. For those interested in a deeper analysis, there are 9 additional InvestingPro Tips available, which could further inform investment decisions. These insights and more are accessible through InvestingPro's comprehensive platform, and readers can use the coupon code PRONEWS24 to receive an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.