On Wednesday, Truist Securities adjusted its outlook on e.l.f. Beauty (NYSE: NYSE:ELF), reducing the price target to $130 from $210, while still recommending the stock as a Buy. The adjustment follows a notable decline in the company's share price, which has fallen 32% since the first fiscal quarter results were released in August, and 50% from its year-to-date peak.
The sell-off in e.l.f. Beauty's shares is attributed to the market's intense scrutiny of scanner data from Nielsen and Circana, and what the analyst describes as management's misguided attempt to predict this data for the second fiscal quarter. Despite initial forecasts by e.l.f. Beauty's management in August that consumer takeaway would increase by 20% year-over-year in the second fiscal quarter, actual scanner data showed a deceleration throughout the quarter, culminating in a September figure approximately half of the expected rate.
Investor concerns have mounted, leading to beliefs that e.l.f. Beauty will not meet quarterly estimates and may lower its guidance for the fiscal year 2025. However, the analyst from Truist Securities believes that the current situation presents a buying opportunity. They argue that the issues with scanner data have been reflected in the stock's valuation, which is currently at 22 times the projected fiscal year 2025 EBITDA, the lowest since August 2022.
The analyst remains optimistic about e.l.f. Beauty's performance, expecting the company to surpass Wall Street estimates and maintain its guidance for fiscal year 2025. They point out that scanner data accounts for only half of e.l.f.'s sales and highlight the company's continued international momentum (16% of sales) and solid performance in untracked U.S. channels such as online sales and Ulta.
Furthermore, the analyst notes that e.l.f. Beauty has consistently exceeded quarterly estimates for the past four and a half years and does not believe that the management's forecasting approach has become less conservative in recent quarters.
In other recent news, e.l.f. Beauty has been the focus of several analysts' reports. DA Davidson reaffirmed a Buy rating, maintaining a price target of $223.00, expressing confidence in the company's potential to surpass the fiscal second quarter 2025 estimates. However, they also noted a deceleration in point-of-sale growth.
Morgan Stanley maintained an Equalweight rating but reduced the price target from $184.00 to $139.00 due to concerns about U.S. scanner data. Piper Sandler, on the other hand, remained optimistic, maintaining an Overweight rating and a $162.00 price target, despite a slowdown in recent sales data.
TD Cowen revised its price target for e.l.f. Beauty to $150 while keeping a Buy rating. Piper Sandler further adjusted its outlook on e.l.f. Beauty, reducing the stock's price target to $162 from $260, but still maintaining an Overweight rating. These adjustments come alongside e.l.f. Beauty's recent financial highlights, which include a 50% increase in net sales and an 80 basis point growth in gross margin.
The company has also authorized a new $500 million share repurchase program and raised its full-year outlook, projecting net sales growth of 25-27% and adjusted EBITDA growth of 26-28%. Despite a softer macroeconomic environment, analysts remain positive about the company's ability to reach the higher end of management's financial projections for both revenue and earnings.
InvestingPro Insights
Despite the recent stock price decline highlighted in the article, InvestingPro data reveals that e.l.f. Beauty (NYSE: ELF) maintains strong financial fundamentals. The company boasts an impressive gross profit margin of 70.91% for the last twelve months as of Q1 2025, underscoring its ability to maintain pricing power and manage costs effectively. This aligns with one of the InvestingPro Tips, which notes the company's "impressive gross profit margins."
Additionally, e.l.f. Beauty has demonstrated robust revenue growth, with a 68.32% increase over the same period. This supports another InvestingPro Tip suggesting that "analysts anticipate sales growth in the current year." The company's strong financial performance is further evidenced by its profitability, with a diluted EPS of $2.10 for the trailing twelve months.
However, investors should note that the stock is trading at a high P/E ratio of 50.06, which corroborates the InvestingPro Tip indicating that it is "trading at a high earnings multiple." This valuation metric, combined with the recent price decline mentioned in the article, suggests that market expectations remain high despite the recent setbacks.
For those seeking a more comprehensive analysis, InvestingPro offers 16 additional tips for e.l.f. Beauty, providing deeper insights into the company's financial health and market position.
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