In November 2023, Estee Lauder stock dipped to a six-year low of $102.22. Cautious consumer spending, soft China demand, and a strong U.S. dollar were major factors in the decline.
Since then, shares of the beauty products maker are up more than 40%. An upward trending U.S. equity market is partly responsible, but so are some positive company-specific developments.
Holiday shopping quarter sales fell 7% year-over-year to $4.28 billion but surpassed the consensus expectation. Estee Lauder’s China travel retail business continues to hurt performance, but sales in the Americas increased 1% led by broad Latin American strength. And while management lowered its Fiscal 2024 outlook, it is forecasting 3% to 5% sales growth for the current quarter.
Signs of a successful makeover at Estee Lauder come at a time when other beauty industry players are showing cracks in the foundation. On Wednesday, Ulta Beauty offered weak first quarter sales growth guidance, sinking its stock 15%. This could suggest that consumers are starting to shift towards Estee Lauder’s extensive makeup, skin care, and fragrance lineup as e-commerce partner Amazon.com pushes further into the beauty space.
Here are four reasons why Estee Lauder stock could continue to recover to new highs:
#1 Direct-To-Consumer Sales Are Strengthening
Direct-to-consumer (DTC) sales are increasingly becoming an important growth engine for Estee Lauder, which now boasts an online presence in about 50 geographic markets. The company’s investments in the digital experience, including personalized mobile services and omnichannel loyalty programs, are showing positive results. According to the latest earnings call, online store sales experienced double-digit growth in Fiscal Q2.
This development is especially encouraging as Estee Lauder also collaborates with Amazon. Recently, the Clinique storefront was introduced on Amazon Premium Beauty. As more shoppers turn to Amazon as a destination for prestige beauty products, Estee Lauder would benefit by default and potentially show robust sales through its own channels and through third parties.
#2 Profit Recovery Plan Is Gaining Traction
Estee Lauder has suffered from a string of seven consecutive quarters of negative profit growth, but this trend is expected to end soon. Analysts are predicting a 6% increase in earnings per share (EPS) for fiscal Q3 and investors have reason to believe this will play out. Specifically, A resurgence in profit growth seems likely given the company’s operating margin widened to 13.4% last quarter, beating the market’s expectation of a 7.8% margin.
This improvement in the bottom line is largely attributed to the company’s Profit Recovery Plan, launched in November 2023. This strategy aims to reduce costs while increasing investments in products and services that can be brought to market quickly, enhancing customer engagement and profitability.
#3 Wall Street Is Becoming More Bullish
On Tuesday, analysts at Citi upgraded Estee Lauder’s stock rating to a Buy rating and increased its price target to $175. The new bullish stance is based on a belief that the company is approaching a pivotal moment in sales as inventories normalize in the Asia Pacific travel retail sector.
This upgrade came after a similar upgrade from Bank of America, which gave credit to Estee Lauder’s comprehensive recovery strategy and its opportunities for gaining market share. Although the analyst consensus remains more neutral than outright bullish, the trend among analysts has been swinging towards a more optimistic outlook on Estee Lauder in recent weeks.
#4 Key Technical Support
Estee Lauder’s earnings report on February 5th represents a key point in the stock’s rebound, as it surpassed its 50-day moving average with trading volume four times higher than average.
This positive momentum, supported by the key trend line, hints at the potential for a continued uptrend. A critical moment awaits if the stock can break through the $150 long-term resistance level with significant volume, suggesting that the recent targets set by Wall Street could be within reach.
The upcoming earnings announcement on May 1st is poised to be a significant catalyst for Estee Lauder’s stock.