On Monday, TD (TSX:TD) Cowen updated its outlook on ULTA Beauty (NASDAQ: ULTA), raising the price target to $450 from the previous $380, while keeping a Hold rating on the stock. Currently trading at $392.87, ULTA has seen its shares decline about 20% over the past year, despite showing revenue growth of 4.44%.
The adjustment comes in response to ULTA's reported sequential comp improvement, which saw a rise to +0.6% from -1.2% in the second quarter. The analyst highlighted that fragrance and skincare were the top-performing categories, experiencing high-single-digit and mid-single-digit percentage growth, respectively. In contrast, both cosmetics and haircare categories saw declines in the low-single-digit percentage range.
ULTA Beauty's stock reacted positively to the earnings per share (EPS) beat, which was reported at $5.14, surpassing estimates by 13% against the expected $4.53. Trading at a P/E ratio of 15.75, InvestingPro analysis suggests the stock is currently undervalued based on its Fair Value model.
Following this outcome, the company has raised its EPS guidance by 2% at the midpoint. The fourth-quarter comp outlook is projected to be in the low-single-digit percentage range, which the analyst suggests may include an element of conservatism.
Despite the positive developments, TD Cowen maintains a cautious stance on ULTA's medium-term prospects. The firm cites challenges such as a slowing industry, increased competition, and recent execution issues as factors for its reserved outlook.
To stay competitive, the analyst emphasized that ULTA must continue to invest in exclusive products, brand incubation, and enhancing the in-store experience, which could impact margins in the near term until the company achieves consistent positive growth.
Looking ahead, ULTA's long-term strengths were acknowledged by the analyst, including the company's robust loyalty program, which boasts over 44 million members, its position as a leading specialty retail market share holder, and a significant store presence with more than 1,400 units. These competitive moats are considered key to ULTA's sustained success in the beauty retail sector.
InvestingPro data reveals the company maintains a strong financial health score of 3.12 (GREAT), with moderate debt levels and liquid assets exceeding short-term obligations. For deeper insights into ULTA's financial health and growth prospects, investors can access the comprehensive Pro Research Report available on InvestingPro.
In other recent news, ULTA Beauty has been a focal point for analysts following its strong third-quarter earnings. Piper Sandler, Stifel, Deutsche Bank (ETR:DBKGn), Canaccord Genuity (TSX:CF), and Telsey Advisory Group have all revised their price targets for the company.
Piper Sandler raised its target to $390, maintaining a neutral rating, while Stifel increased its target to $455, Deutsche Bank to $459, Canaccord Genuity to $500, and Telsey Advisory Group also to $500. These revisions came after ULTA reported an adjusted earnings per share of $5.14, surpassing the estimated $4.52 to $4.53, and a year-over-year sales increase of 1.7%. Furthermore, the company reported an unexpected rise in comparable store sales of 0.6%.
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