Estee Lauder’s 1Q Results Exceed Expectations; Shares Fall 8%

Shares of Estee Lauder (EL) plunged 7.94% yesterday, despite the company reporting better-than-expected sales and earnings in 3Q 2021. The sell-off came on the back of the company’s warning of potential continued weakness in retail traffic owing to COVID-19 restrictions. COVID-19 remains a big headwind disrupting the company’s operating environment.

Estee Lauder delivered a 16% increase in net sales to $3.35 billion. Sales grew in every region and across most business units, reflecting the ongoing recovery. The company also bounced back to profitability posting net earnings of $456 million compared to a net loss of $6 million in the prior-year period. Net earnings per common share came in at $1.24 compared to a $0.02 net loss reported in the same period last year.

“Our growth engines of Skin Care and Fragrance were incredibly powerful. Sales rose in every region, led by double-digit growth in Asia/Pacific, where many markets contributed and sales growth in mainland China accelerated. Online thrived as a growth engine, with sales having increased strong double-digits around the world, and Travel Retail excelled,” said CEO, Fabrizio Freda.

Backed by strong cash flow generation, Estee Lauder resumed share repurchases in the quarter. In addition, the company continues to implement cost controls in certain areas of the business. Management expects full-year sales to increase between 11% and 12%. EPS is projected to be between $5.31 and $5.48 for the full year. (See Estee Lauder stock analysis on TipRanks).

Amid the recent share price drop, Oppenheimer analyst, Rupesh Parikh has reiterated a Buy rating. According to the analyst, Estee Lauder boasts strong long-term prospects.

“We expect the share price weakness to be short-lived as fundamentals likely continue to strengthen as makeup rebounds in coming quarters. Management reiterated confidence in a full makeup recovery, which should help to potentially catapult results even further above pre-pandemic levels,” Parikh wrote in a research note to investors.

Parikh has a $300 price target on the stock implying 3.83% upside potential to current levels.

Consensus among analysts is a Strong Buy based on 15 Buy and 2 Hold ratings. The average analyst price target of $337.56 implies 16.83% upside potential to current levels.

EL scores a 7 out of 10 on TipRanks’ Smart Score rating system, implying it is most likely to perform in line with market expectations.

Estee Lauder Stock Analysis by Tipranks

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