On Tuesday, UBS has increased the price target for ULTA Salon (NASDAQ: ULTA) to $690 from the previous $575, while keeping a Buy rating on the stock. The firm's outlook is positive, anticipating ULTA to experience another robust year in 2024. This optimism follows a solid performance in the fourth quarter where ULTA capitalized on the strength of the beauty category.
According to UBS, there are several reasons to expect the company's stock to progressively rise in the coming quarters. First, ULTA is seen as capable of navigating through a fluctuating demand landscape.
Second, the company is expected to maintain its profit margins even with a slower revenue growth compared to the fiscal year 2023. Third, the analyst forecasts an improvement in flow-through in fiscal year 2025 and onward as ULTA completes one of its largest investment cycles.
The beauty retailer's shares have appreciated approximately 12% over the past three months. Despite this increase, ULTA's stock is still trading below its 5-year average historical multiple. UBS highlights the resilience of the beauty sector, ULTA's significant market share growth over the past years, and internal drivers that could protect its profit margins. These factors contribute to UBS's view that the stock offers an attractive risk-reward balance moving forward.
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