Analysts at UBS awarded e.l.f. Beauty, Inc. (NYSE:ELF) a ‘Buy’ rating as they initiated coverage of the cosmetics brand, saying its growth runway is “a thing of beauty.”
What’s more, their price target of $138 per share implies 26% upside from current levels.
The analysts believe e.l.f. can achieve organic growth of 47% in its 2024 financial year, and 20% the year after, driven by innovation-led share gains across the mass beauty industry.
“When layering in a contribution from a faster-growing skin care category (now ~18% of sales) and an underappreciated runway for international growth, we believe the Street is still not fully reflecting ELF's top-line potential, with our estimates for FY24 and FY25 +8% and +16% above consensus, respectively,” the analysts wrote in a report.
Beyond sales growth, the analysts noted that e.l.f. is in the “early innings” of a bottom-line inflection story after years of cost headwinds and increased spending.
As a result, they expect the strong top-line growth to flow through to profits, driving a more than 28% compound annual growth rate (CAGR) in earnings per share from its 2023 financial year through to FY2026.
“We believe this greater flow-through will allow ELF to maintain its current premium valuation, thereby rewarding shareholders with stronger earnings growth,” the analysts added.
The UBS’ price target of $138 is not far off Morgan Stanley (NYSE:MS)’s reduced target of $147, down from $162.
e.l.f.’s shares traded 0.2% down at $109.09 in Wednesday early afternoon trade.
Contact the author at stephen.gunnion@proactiveinvestors.com