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Estee Lauder (EL) Up 61% in a Year: More Growth in Store?

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Driven by consumers’ improved spending on beauty and personal care products, The Estee Lauder Companies Inc. (EL - Free Report) has been depicting sturdy growth across most of its geographic regions and product categories. Moreover, the company has been resorting to acquisitions and expanding online sales channels to further strengthen its foothold in the industry.

Well, the impact of such factors is evident from this Zacks Rank #2 (Buy) company’s bull run in the stock market. Shares of this leading cosmetics company witnessed an astounding surge of 61% in a year compared with the industry’s rise of 32.1%. Let’s now take a look into the aspects driving this spectacular growth and see if the company can add new leaves to its growth story.

Acquisitions Boost Performance

Estee Lauder has made several strategic acquisitions to enhance its portfolio. The acquisitions of BECCA and Too Faced has strengthened its fastest-growing prestige portfolio and contributed significantly to sales growth in the first quarter of fiscal 2018. Also, management expects these brands to contribute roughly 2 percentage points to the company’s overall sales growth in fiscal 2018. The investment in DECIEM, a fast-growing multi-brand company, is also likely to aid top-line performance in the forthcoming periods.

 



 

Prospects in Emerging Markets

Estee Lauder has a strong presence in the emerging markets which insulates it from the macroeconomic headwinds in the matured markets. The company derives a significant amount of its revenues from the emerging markets. In fact, Brazil is one of Estee Lauder’s fastest-growing markets, driven largely by M-A-C, DKNY and Tommy Hilfiger brands. Also, The Middle East, North Africa, sub-Saharan Africa and Asia Pacific markets offer extensive untapped potential for the company. Notably, Estee Lauder has bright prospects in China, wherein sales soared nearly 50% in the first quarter of fiscal 2018. The company’s Chinese operations have been gaining from rising demand from millennials. Management envisions persistent strength in luxury products in China, which keeps it encouraged about making incremental investments in the region.

Surging Online Business

Estee Lauder is focused on widening its global online presence by adding new sites and expanding retailer distributions. Evidently, the company launched more than 100 sites during the first quarter. Online sales during the said period improved 33%, driven by increased traffic, order size and conversions. Owing to technological advancement and growing popularity of social media, mobile sales constituted about 70% of the company’s online traffic. Further, Estée Lauder is implementing new technology and digital experiences, including online booking for each store appointment, and omni-channel loyalty programs. These initiatives are expected to boost the company’s top line in the forthcoming periods.

Looking Ahead

Estee Lauder projects continued growth opportunities in the global prestige beauty industry, which is anticipated to grow 4-5% during fiscal 2018. Moreover, the company’s strong fundamentals have led management to provide an optimistic view for the year. Management expects net sales to grow in the range of 10-11% in fiscal 2018 compared with the previous expectation of 8-9%. The company also expects adjusted earnings in the range of $4.04-$4.12 per share for fiscal 2018 compared with the previous view of $3.87-$3.94.

With such bright prospects rolled up in its sleeve, Estee Lauder seems well placed to reach new highs this year and thereby continue being in the good books of investors.

Greedy for Consumer Staples Stocks? Check These

Investors interested in the same sector may also consider investing in companies such as United Natural Foods, Inc. (UNFI - Free Report) , Kimberly-Clark Corporation (KMB - Free Report) and Church & Dwight Company Inc. (CHD - Free Report) , each carrying a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

United Natural came up with an average positive earnings surprise of 2.3% in the trailing four quarters. It has a long-term earnings growth rate of 6.2%.

Kimberly-Clark pulled off an average positive earnings surprise of 2% in the trailing four quarters. Also, it has a long-term earnings growth rate of 6.2%.

Church & Dwight delivered an average positive earnings surprise of 6.8% in the trailing four quarters. It has a long-term earnings growth rate of 8.9%.

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