Analysts at the Bank of America (BoA) increased their price target for e.l.f. Beauty, Inc. (NYSE:ELF) after the beauty giant announced it will be acquiring skincare brand Naturium in a $355 million cash and stock deal.
The analysts raised their price target from $155 to $165 and reiterated their ‘Buy’ rating.
e.l.f. shares traded up 4.1% at US$139.08 on Wednesday afternoon.
The analysts explained that their price target was based on a discounted cash flow analysis implying a 34.5 times 2024 calendar year estimate enterprise value (EV)/earnings before interest, taxes, depreciation and amortization (EBITDA) multiples as e.l.f.’s sales and market share accelerate.
“We believe this premium multiple is warranted as the company is still in a high growth phase and continues to diversify its portfolio and customer base,” they wrote in a note to clients.
On the Naturium acquisition, the analysts highlighted that e.l.f. expects it to double its percentage in sales of skincare from 9% to 18%.
“Naturium fits well into ELF's portfolio, providing clinically effective products with ingredient-led formulas at an affordable price point,” they wrote.
“Naturium sits in ‘masstige; with a price point of about $18, higher than ELF's current skincare portfolio of about $9, and the brand will continue to be separate and complementary to ELF Skin.”
They wrote that e.l.f. currently holds just 1.5% market share of skincare with its ELF Skin brand, the fastest growing among the top 20 skincare brands in the fiscal first quarter.
The company sees a significant opportunity to expand Naturium’s distribution in brick-and-mortar retailers, the analysts added.
“Target accounts for about 50% of Naturium's sales, with the remaining 50% split about evenly between Amazon and Naturium's direct-to-consumer website,” they wrote.
“Naturium has low brand awareness, at about 5%, well below peers such as Neutrogena (KVUE) at 83% and CeraVe (L'Oreal) at 73%.”
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