Wells Fargo maintains Estee Lauder at overweight with $175 target

On Wednesday, Wells Fargo reiterated its Overweight rating on Estee Lauder shares (NYSE:), maintaining a price target of $175.00. The firm’s analysis was based on recently released full import data for China from March 2024, which showed a decline in cosmetics imports and duty-free sales. The data suggested that Estee Lauder’s growth in China Mainland might not materialize in the fiscal third quarter (FQ3).

According to the March 2024 data, cosmetics imports into China decreased by 20.4% year-over-year in US dollars, or 17.9% when excluding foreign exchange (FX) effects. The volume of imports also saw a decline, worsening to a 20.3% decrease compared to a 14.7% decrease observed in January and February. Despite the lower volumes, the value of imports was still 123.7% relative to 2019 levels, indicating a higher price/mix of +2.5% in March, compared to a -2.0% in the first two months of the year.

The report also highlighted a significant drop in duty-free imports, which fell by 36.9% year-over-year in March in US dollars, and by 34.4% when accounting for FX impacts. This volatility in duty-free imports suggests that inventory clearing continued, and growth in China’s Travel Retail sector is unlikely for FQ3.

Wells Fargo noted that while the market may not have high expectations for Estee Lauder’s performance in Mainland China and Asia’s Travel Retail sectors, any positive results would be a notable upside. However, if these regions fail to deliver growth, the company might need to discuss potentially lower ends of the full-year organic sales range. Despite these concerns, Wells Fargo believes that Estee Lauder’s earnings per share (EPS) are secure, with the possibility of gross margin (GM) upside in the quarter.

InvestingPro Insights

As we delve into the financial health and market performance of Estee Lauder, InvestingPro data reveals a nuanced picture. With a market capitalization of $49.55 billion and a robust gross profit margin of 70.04% for the last twelve months as of Q2 2024, the company demonstrates a strong ability to maintain profitability. This is further supported by an impressive three-year track record of raising dividends, reflecting a commitment to shareholder returns.

However, investors should be mindful of the company’s high earnings multiple, with a P/E ratio of 106.57, which suggests a premium valuation compared to the market average. The PEG ratio, which stands at -1.53, indicates potential concerns over future earnings growth relative to the current earnings multiple. Additionally, Estee Lauder’s revenue has seen a decline of 7.33% over the last twelve months as of Q2 2024, which may be a point of consideration for those evaluating the company’s growth trajectory.

For those looking for deeper insights and additional analysis, there are more InvestingPro Tips available for Estee Lauder, including the company’s debt levels, valuation multiples, and profitability forecasts. Discover these tips and more by exploring Estee Lauder’s profile on InvestingPro, and take advantage of the special offer using the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.

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