Ulta Beauty Inc (NASDAQ:ULTA) shares added about 3% after the beauty retailer was upgraded by Bank of America analysts to a ‘Buy’ rating from ‘Neutral.’
The firm maintained its price objective of $685, implying upside from the stock’s current price of $532.
Bank of America sees a more favorable setup for Ulta following a pullback in the shares, which are down roughly 26% from their 52-week high.
The analysts argued that more tempered investor expectations now present an opportunity to invest in what they describe as a “high-quality compounder” at a discount to peers.
The upgrade reflects growing confidence that Ulta’s recent investments will drive improved profitability over time. Bank of America said it expects consistent sales growth coupled with better “flowthrough,” the ability for revenue gains to translate into earnings, to support a higher valuation multiple.
“We expect consistent sales growth with better flow-through to be rewarded with a higher multiple,” the analysts wrote.
The firm characterized Ulta’s strategy as a “flywheel” rather than a “treadmill,” suggesting that investments across areas such as personalization, supply chain, digital capabilities, marketplace initiatives, retail media, wellness, and international expansion are expected to reduce long-term costs and improve customer economics. These efforts, in turn, could support stronger operating income growth and free cash flow.
Bank of America also pointed to Ulta’s differentiated business model, highlighting its broad product assortment, extensive store footprint, and loyalty program of approximately 46.7 million members, which account for about 95% of sales. In a more competitive beauty market, the firm said these attributes continue to reinforce Ulta’s positioning with consumers.
Looking ahead, the analysts wrote that the key question is not whether Ulta can grow, but whether that growth can translate more efficiently into profits. They expect the company to achieve a low double-digit operating income growth algorithm beginning in fiscal 2026.
In addition to operational improvements, Bank of America noted a growing return-of-capital story. Ulta recently increased its share repurchase outlook to $1.5 billion from $1 billion, representing roughly 6% of its market capitalization.
The firm raised its earnings per share estimates for fiscal 2026 and 2027 by 1% and 3%, respectively, to reflect the higher buyback.