Estee Lauder Companies Inc (NYSE:EL) could see lower their earnings due to anticipated challenges in the Chinese market, Bank of America said in a new report lowering the cosmetics firm’s full-year 2024 estimates.
Analysts adjusted their outlook for Estee Lauder, citing a weaker-than-expected economic recovery in China and the resulting implications for the company's performance.
Bank of America lowered its price objective (PO) from $205 to $175, which represents a 4x reduction from the previously estimated calendar year 2025 estimated target price-to-earnings (P/E) multiple of 27x.
Despite the lowered PO, the analysts still anticipate an upside of 7% and maintain a Neutral rating for the company's stock, citing both the long-term growth potential in China and the overall strength of the beauty industry.
Regardless, the Chinese market downturn and inventory concerns have and will impact Estee Lauder’s business.
According to the Bank of America report, the Chinese economy is anticipated to undergo a sluggish recovery through 2024, following deteriorating macroeconomic data in the second quarter of 2023. Analysts are thus taking into account the possibility of a prolonged consumption recovery in China, expressing concern over the pace of recovery and potential for additional inventory write-downs, factors that are likely to influence the company's near-term earnings potential.
Estee Lauder’s previous timeline for inventory normalization, driven by improved mobility, has been extended to early calendar 2024. The analysts anticipate the lingering effects of inventory overhang until January or February.
In light of the challenges posed by the slow recovery in China, the analysts have revised their earnings per share (EPS) estimates for fiscal years 2024 and 2025. The estimates have been lowered from $4.46/$5.95 to $4.40/$5.90 for FY24/FY25, respectively.
The upcoming fiscal year 2024 guidance from Estee Lauder is likely to reflect the challenges the company is facing, which could further impact consensus estimates for FY24 and FY25, analysts noted.
“With the Beauty recovery and the resiliency of sales growth levers already well-understood, we view further multiple expansion from here as challenging, although we acknowledge the continuing fundamental strength of the business,” Bank of America analysts noted.
Shares of Estee Lauder nudged around 0.2% higher on Wednesday at $163.76.
Contact Angela at angela@proactiveinvestors.com
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