Analysts moved estimates higher, keeping valuations in check and giving SBH a Zacks #1 Rank (Strong Buy).

Company Description

Sally Beauty is a beauty retailer with over 4,000 stores, in addition to outside sales consultants, in North America and Europe.

Earnings Jump 43%

On May 5 Sally Beauty released quarterly results that showed an 11% rise in net sales, to $802 million. Same store sales were up 6% and the rest was attributed to new stores and acquisition activity.

Margins were expanding during the period as well, pushing net income 43% higher, to $49.3 million. That works out to $0.26 per share, up from $0.19 a year ago. The Zacks Consensus Estimate was calling for $0.23, giving Sally Beauty its fifth consecutive earnings surprise.

Higher Growth Rates

Analysts raised the bar for Sally Beauty after the earnings surprise, unanimously raising full-year estimates. The Zacks Consensus for fiscal 2011 rose 4 cents, to $1.01, which is 31% higher than last year.

Next year's average forecast is also up 4 cents, to $1.17, which puts the expected growth rate at 16%.

Valuation Picture

Share of SBH jumped on the news, but those higher estimates have kept valuations in check. The forward P/E is about 15 times and, with a 5-year growth rate of 12%, the PEG ratio is 1.3. That doesn't scream value, but shows a reasonable price.

Given that they are more than half way through the fiscal year, you could use the 2012 estimates, which give a P/E near 13 times and PEG of 1.1, a bit more attractive.

Slow and Steady

The estimate outlook for SBH has not been dramatic over the past few years. But, as they say, slow and steady wins the race. Take a look at the consistent year-over-year improvements and the slight increases throughout the year. That is exactly what you want to see for long-term growth from a company.

Bill Wilton is the Aggressive Growth Stock Strategist for Zacks.com. He is also the Editor in charge of the Zacks Small Cap Trader service