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Will Estee Lauder's Strategic Efforts Help Gain Momentum?

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Estee Lauder Companies, Inc.(EL - Free Report) has been gaining momentum of late. The company is well-positioned in the consumer product categories on the back of a strong portfolio, constant innovation and robust acquisitions. Further, this Zacks Rank #3 (Hold) stock flaunts a Momentum Score of “B”, with a long-term earnings growth rate of 11.4%, which highlights its inherent potential.

Deeper Insight

Estee Lauder posted better-than-expected earnings and sales in third-quarter fiscal 2017 on May 3. In the third quarter, earnings grew 24.7% year over year, while sales rose 8%, driven by acquisitions of BECCA and Too Faced. Strong product portfolio driven by mid-sized and luxury brands, and online and specialty-multi retail channels also drove sales. The company has also raised its earnings guidance for fiscal 2017 and expects continued growth opportunities in the global prestige beauty industry.

Notably, shares of Estee Lauder gained 20.3% on a year-to-date basis as against the Zacks categorized Cosmetics & Toiletries industry’s dip of 1.1%. The industry is currently placed at bottom 28% (190 out of 256) of the Zacks Classified industries.

Estimates have also witnessed upward revisions over the past 30 days. For fiscal 2017 and fiscal 2018, the Zacks Consensus Estimate of $3.39 and $3.75 has increased by 2.1% and 1.1%, respectively. Also, the company expects adjusted earnings in the range of $3.32–$3.37 per share.

Estee Lauder Companies, Inc. (The) Price, Consensus and EPS Surprise

 

Estee Lauder Companies, Inc. (The) Price, Consensus and EPS Surprise | Estee Lauder Companies, Inc. (The) Quote

The company’s business is accelerating of late, driven by many brands, channels and markets that experienced strong momentum. Since the beginning of fiscal 2017, sales have improved. The acquisitions of BECCA and Too Faced (during the first quarter fiscal 2017) strengthened its fastest growing prestige portfolio and contributed approximately half the reported sales growth in third-quarter fiscal 2017. The company expects sales growth to increase further in the fourth quarter, with continued improvement expected in fiscal year 2018.

Further, consumers’ rising demand for beauty products, particularly in the luxury arena and in makeup, has resulted in robust growth in its high-end brands and continued double-digit growth in the makeup category. In addition, the company is witnessing strong growth in the fastest-growing beauty channels, with travel retail, online and specialty-multi, each rising strong double digits. The company is expected to remain focused on a dynamic prestige industry that has been growing steadily for many years and continues to grow faster than many other household and personal care sectors.

Estee Lauder also has a strong e-Commerce business and the company expects it to be a major growth engine for the upcoming few years. Estee Lauder is implementing new technology and digital experiences including online booking for each store appointment, omni-channel loyalty programs and high touch mobile services. These initiatives are expected to boost the company’s top-line.

However, the company is sceptic of slower retail growth in Hong Kong, decline in spending by travelers in France and Middle East, and unfavorable currency. Further, the company has been facing lower sales in America due to decline in retail traffic in U.S. brick-and-mortar stores, principally for MAC, Estee Lauder and Clinique. A decrease in tourist spending also adversely affected sales in certain U.S. MAC stores. The company is also facing difficult economic or political climates, particularly in the Middle East, Turkey and Latin America.

Though Estee Lauder is strategically focusing on expanding in Asia and foresees great improvement in China and Korea, there are still political tensions that have curtailed Chinese consumers traveling to South Korea.

Stocks to Consider

Better-ranked stocks in the same industry include SunOpta Inc. (STKL - Free Report) , Aramark (ARMK - Free Report) and Inter Parfums, Inc. (IPAR - Free Report) .

SunOpta, with a long-term earnings growth rate of 15% currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Aramark carries a Zacks Rank #2 (Buy) and has a long-term earnings growth rate of 12.8%.

Inter Parfums, a Zacks Rank #2 stock, has a long-term earnings growth rate of 12.0%.

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