Canaccord Genuity has maintained its Hold rating on Estee Lauder (NYSE: NYSE:EL) shares but reduced the price target to $100 from the previous $131. The adjustment comes ahead of the company's fourth-quarter fiscal year 2024 earnings report, which is scheduled to be released on Monday, August 19, before the market opens.
The revision in Estee Lauder's price target reflects a recalibration of the expected trading multiple due to the ongoing uncertainty surrounding the recovery of travel retail in China and Asia. Canaccord Genuity's valuation is now based on a multiple of 25 times the firm's fiscal year 2025 earnings per share estimate, a decrease from the ~34 times multiple at which the stock has recently traded.
Estee Lauder's sales growth for the fourth quarter is now anticipated to be at +4.4%, which is a downgrade from the previous +7.7% estimate and falls below the company's own guidance range of +5-9% as well as the consensus estimate of +5.3%.
The adjustment is partly attributed to a weak holiday sales period in China on June 18, which likely affected beauty product sell-outs and could result in continued promotions and inventory issues in the region.
The analyst projects gross margin recovery for Estee Lauder, with an estimated +300 basis points leverage compared to the market's expectation of +347 basis points, which would amount to 71.0% of sales. This figure, however, remains below the pre-pandemic levels of over 77% gross margin in the fourth quarter.
For selling, general, and administrative (SG&A) expenses, Canaccord Genuity estimates a +75 basis points leverage, which is slightly less optimistic than the +85 basis points leverage anticipated by other market analysts. The projection takes into account some marketing investments but also considers benefits from a lower year-over-year headcount.
In terms of earnings, the firm's adjusted earnings per share (EPS) estimate for Estee Lauder stands at $0.20, which is within the company's guidance of $0.18-$0.28 but below the consensus estimate of $0.27.
InvestingPro Insights
As Estee Lauder (NYSE:EL) gears up to release its fourth-quarter earnings report, insights from InvestingPro reveal a mix of strengths and challenges that investors may consider. The company's impressive gross profit margin, which stood at 70.77% in the last twelve months as of Q3 2024, suggests a strong ability to control costs and maintain profitability. This aligns with Canaccord Genuity's projection of gross margin recovery for Estee Lauder and supports the analyst’s expectation of a +300 basis points leverage in the upcoming report.
However, Estee Lauder's stock has experienced significant volatility, with a price drop of over 30% in the last three months. Despite this, the company has demonstrated a long-term commitment to shareholders by maintaining dividend payments for 29 consecutive years, with a dividend yield of 2.77% as of the most recent data. This could be a point of reassurance for investors looking for stability in their investments.
With the market cap of Estee Lauder at $34.11 billion and a high P/E ratio of 53.41, investors are paying a premium for earnings, which is something to watch in light of the 10 analysts who have revised their earnings downwards for the upcoming period. For those seeking more in-depth analysis, InvestingPro provides additional tips that can further inform investment decisions regarding Estee Lauder.
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