Piper Sandler analysts downgraded Estee Lauder (NYSE:EL) shares to Neutral from Overweight and cut the price target by $70 to $195 per share.
Despite a move lower in EL shares, reflecting “weakened” sentiment, the analysts see further downside risk. This is despite “the eventual China recovery tailwinds that many are anticipating and factoring into current valuation.”
“Work from our PSC Macro team suggests a recovery in China could still be a ways away with several economic indicators pointing to additional pressure. Specifically, we're seeing heightened youth unemployment, weak property transactions, a rising level of savings deposits as a result of lower consumer confidence, and travel to Hainan Island taking a step down,” they wrote in a downgrade note.
In addition to China-related headwinds and the slower-than-expected travel demand, the analysts also highlight other parts of EL’s business that are facing challenges.
“We also see little to no improvement in brand power in other geographies EL operates in, as exhibited by weakening market share, flat to lower brand preference in our Taking Stock with Teens Survey, a secular channel mix shift away from department stores, and job cuts across several brands. Add in growing strength of mass beauty (we see as partially innovation driven and partially macro-economic driven), and we struggle to see a scenario where other parts of EL’s business would be able to meaningfully offset the weakness in China.”
Overall, the analysts see a “more balanced than positive” risk-reward at current levels for EL stock, hence the rating change.
This is the 5th downgrade for EL shares since May.
The stock is down 1.3% in premarket Monday.