Fiscal second quarter numbers from beauty products company Estee Lauder (NYSE:EL) were very strong, according to broker Jefferies.
On the back of an 8% organic increase in sales and better-than-expected earnings per share of 11 cents, the broker has upped its price target to $93 from $87, though with the shares currently trading at around $91, the stock remains no more than a hold.
The broker said there is a lot to like about the company, and its execution has been commendable, given the tough macro environment.
Nevertheless, the broker reckons the shares are fully valued, given that its enterprise value (EV) – essentially the market value of the company adjusted for cash and debt – is 15.6 times its projected underlying earnings (EBITDA) for the current year, whereas the average for the sector is 13.5.
Ahead of Coke's fourth quarter results on Tuesday, Japanese broker Nomura has run its eye over Coca-Cola (NYSE:KO) and sees plenty of scope for self-help initiatives.
The broker has raised its target price a little from $53 to $54.
“On top of our core DCF [discounted cash flow] value of $45, we see additional upside, particularly from more cost cutting ($5 per share, as previously); in addition, we have identified bottling reconfiguration moves that are worth $1.5 per share and the potential for price/mix in N America to add $2.5 per share,” the broker reckons.
It is not expecting anything dramatically surprising in Tuesday's numbers, but reckons the current year could see the fizzy drink maker step up momentum, even ignoring the potential to add to the portfolio.
In the UK there is mounting pressure on the government to introduce a tax on sugar to offset the National Health Services massive expenditure on treating obesity-related diseases, which may set a worrying – for Coca-Cola – precedent if it happens, but Nomura is not unduly worried by the threat.
Goldman Sachs noted it was another bruising week for healthcare companies, as the mediocre earnings season continued.
With around seven-tenths of the S&P 500 healthcare companies having now reported, Goldman Sachs said numbers and guidance have, at best, been “just okay”, barring the strength of medtech (medical device makers) companies.
Foreign exchange movements have put a dent n profits, while there has been a 12th successive week of outflows from healthcare focused funds, meaning the sector is only prevented from propping up the S&P performance table by the even more miserable performance of financial stocks.
“Strikingly, sector multiples have also continued to collapse – HC’s [healthcare's] 6% discount to the S&P is now the widest it’s been since April 2012. Pricing/election rhetoric seem the nags here and as we limp out of earnings, the bar for multiples to recover seems high with the political landscape set to get heightened attention again,” Goldman Sachs said.