On Thursday, Piper Sandler adjusted its outlook on shares of Estee Lauder shares (NYSE: NYSE:EL), reducing the price target to $108 from the previous $141 while maintaining a Neutral rating.
The adjustment follows observations of continuing consumer softness in China, which may lead to lower than anticipated sales for the fourth fiscal quarter. Piper Sandler anticipates sales to be at the lower end of the company's guidance, contrasting with other analysts' expectations that are skewed towards the mid to high end.
The firm acknowledges that Estee Lauder's management remains confident in the Profit Recovery Program's ability to enhance gross margins. Despite this, there are concerns about the potential risks to the profit and loss statement from weaker scale benefits and possible input cost inflation due to a sluggish Chinese market.
Piper Sandler suggests that although the market may have already factored in the Chinese consumer market softness, there is a risk to Estee Lauder's stock if the fiscal year 2025 guidance falls significantly below current analyst estimates.
Estee Lauder's efforts to regain market share, especially in the United States, have been viewed positively by Piper Sandler. The firm believes that continued progress in this area could lead to long-term benefits for the company. Still, the current forecast reflects caution due to the possibility of prolonged softness in the market extending into the first quarter of the fiscal year 2025.
In other recent news, Estee Lauder has been the center of several significant developments. TD (TSX:TD) Cowen maintained a Hold rating on Estee Lauder shares, citing the need for a more customer-focused approach and a stronger presence in the fragrances and hair product sectors.
Barclays (LON:BARC), however, reduced its price target for the cosmetics company to $136 from $140, maintaining an Equalweight rating, due to cautiousness about Estee Lauder's growth potential, particularly in relation to the Chinese consumer market.
Estee Lauder also finalized its acquisition of DECIEM Beauty Group, a strategic expansion of its skincare portfolio, with the total investment net of cash amounting to approximately $1.7 billion over three tranches. This move is expected to target millennial and Gen Z consumers through DECIEM's digitally native business model and innovative approach to beauty.
A market research firm maintained a hold rating for Estee Lauder due to concerns over the pace of the company's recovery in certain markets and high inventory levels. The firm also adjusted its earnings per share estimates for the company downward for fiscal years 2024 and 2025.
Furthermore, Morgan Stanley (NYSE:MS) downgraded Estee Lauder's stock from Overweight to Equalweight, reducing its price target to $140 from $164, due to reassessed growth trajectory and market share challenges. These recent developments reflect the evolving landscape for Estee Lauder in a competitive industry.
InvestingPro Insights
Amid the concerns highlighted by Piper Sandler, Estee Lauder's financial resilience and market performance offer a mixed picture. With a robust gross profit margin of 70.77% in the last twelve months as of Q3 2024, the company demonstrates its ability to maintain profitability. This impressive margin aligns with the InvestingPro Tip highlighting Estee Lauder's impressive gross profit margins, suggesting that the company's Profit Recovery Program may indeed have a positive impact on margins.
Still, the stock's recent performance indicates potential caution for investors. Estee Lauder's stock has experienced a notable decline, with a 13.09% drop in the last month and a steep 29.42% fall year-to-date as of 2024. These figures echo the InvestingPro Tip that the stock has fared poorly over the last month, adding weight to Piper Sandler's cautious stance. Moreover, with the stock trading at a high earnings multiple of 58.78 and near its 52-week low, it may signal a valuation concern for investors looking at entry points.
For those considering Estee Lauder as a potential investment, there are additional InvestingPro Tips available that could provide deeper insights into the company's financial health and market prospects. Readers interested in a more comprehensive analysis can find further tips on Estee Lauder at https://www.investing.com/pro/EL. To enhance your investing strategy, use the coupon code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription, and discover the full range of actionable insights offered by InvestingPro.
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