Estee Lauder Companies Inc (NYSE:EL, ETR:ELAA)'s expected rebound has prompted analysts at the Bank of America to upgrade their rating and boost their price target on the New York-headquartered cosmetics company.
Describing the stock as a “Cinderella Story,” the analysts have upped their rating on the stock from ‘Neutral’ to ‘Buy’ and price target from $160 to $170. Estée Lauder shares traded 5.8% higher at about $153 late morning on Thursday.
“We upgrade Estée Lauder expecting meaningful growth off what appears to be bottoming sales and earnings per share (EPS),” the BofA analysts wrote.
They pointed out that it was company-specific and macro factors that drove negative revisions on the stock for the past two years.
“Currently, there are a range of initiatives in motion to recover profitability, sharpen brand/product efficacy/proposition and achieve more balance (sales growth and profit) across channels and geographies,” they wrote.
“As a result, we raise our 2026 financial year EPS estimate from $5.50 to $5.85, with our earning sensitivity model suggesting potential upside to $6.49.”
They highlighted that, while China remains volatile, Estée Lauder has adapted to the slowdown in the Travel Retail segment by broadening distribution across channels, accelerating new product introductions and building efficiencies, such as by shortening its supply chain.
“We expect market share growth and operating leverage as Estée Lauder reduces its reliance on China and Travel Retail down from peak mix of 36% and 26% in the 2021 financial year,” they wrote.
Additionally, they see the company returning its focus on product upgrades and innovation.
“The company is rolling out new 'derma' lines, increasing marketing for Clinique and Estée Lauder brands, and freshening up the MAC and Bobbi Brown brands in makeup,” they noted.
“Along with a marketing push on high-end brands, we expect Estée Lauder’s mix and share in the prestige category should improve.”
The analysts noted several risks to their thesis, including if the China consumer weakens substantially, execution risk around Estée Lauder’s multidimensional plan, and the fact that success is dependent on the company achieving more consistent growth across developed markets and emerging markets excluding China.