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Will Estee Lauder Benefit from the Too Faced Acquisition?

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Cosmetics giant Estee Lauder Companies Inc. (EL - Free Report) has completed the acquisition of feminine cosmetics brand Too Faced. The company had announced its intention to takeover the brand way back on Nov 14, 2016 for a purchase price of approximately $1.45 billion.

Too Faced is popular among its users which comprise mostly the millennials, who are very conscious and active about social media, fashion and pop culture. The brand famous for its eye shadow palettes and collections, mascaras and foundations is expected to record net sales of almost $270 million in 2016, up 70% year over year. Too Faced has been part of leading global growth equity firm General Atlantic’s portfolio since 2015.

The buyout allows Estee Lauder to add to one of the fastest growing makeup brands in its already rich portfolio. Further, it helps the company bolster its share in the booming makeup category and specialty multi & online channels, favorably diversifying its product mix and de-risking it from North American department stores. The deal is also likely to aid Estee Lauder broaden its consumer base and increase its appeal to the millennials – all in strong alignment with the company’s strategy.

Estee Lauder has made several strategic acquisitions in the past to enhance its portfolio. The takeover of Too Faced closely follows the takeover of BECCA (in Nov 2016) – which specializes in foundations and complexion products. The brand’s strong presence in fast growing North America specialty multi-retailers and a loyal customer base is likely to be beneficial for the company. Such deals improve the categories and aid gain market share against national competitors.

These strategic acquisitions are expected to help the company come out of the ongoing headwinds. A soft macroeconomic condition in Greater China and Korea is slowing the Zacks Rank #3 (Hold) company’s growth in Asia. Further, the company has been facing lower sales in America. Declining footfalls in the mid-tier department stores can also be attributed for the soft top-line results. The dismal results is reflected in the price movement of the stock as the shares of the company plunged 13.4% on a year-to-date basis, underperforming the Zacks categorized Consumer Staples sector, which has showcased a gain of 1.8%.

 

 

Stocks to Consider

Some better-ranked stocks in the broader consumer staples sector include Inter Parfums Inc. (IPAR - Free Report) , US Foods Holdings (USFD - Free Report) and Sysco Corporation (SYY - Free Report) , all carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Inter Parfums Inc. has an expected earnings growth of 15%. US Foods has an expected earnings growth rate of 17.1%, while Sysco Corporation has a long-term growth rate of 8.8%.

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