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On Mar 22, 2013, we maintained our Neutral recommendation on Estee Lauder Companies Inc. (EL - Analyst Report) following the appraisal of its second quarter 2013 results.

Why the Reiteration?

Estee Lauder reported second quarter 2013 earnings on Feb 5, 2013 with adjusted earnings of $1.16 increasing 14.9% from the prior-year quarter earnings and also beating the Zacks Consensus Estimate by 14.8%, on the back of strong business in the U.S. and emerging markets.

We are encouraged by the company’s strong brand portfolio and growing prestige beauty segment. Moreover, the company is fast spreading into developing nations of Latin America and Asia, where its flagship brand MAC is gaining massive popularity. The company is putting a lot of emphasis on travel retail and boosts sales through aggressive promotions and store openings.

The High-Touch customer service (customer service with extensive personal contact) of Estee Lauder is also helping it to attract new customers and maintain loyalty of existing ones. Moreover, the company has been growing faster than the industry in the past years and aims to grow at least 1% faster than the global beauty product industry moving into 2014.

Although the company is on track to achieve its cost reduction goal, and increasing its operational efficiency and focusing on high-margin products, the absence of strategic acquisitions and slow recovery of economic conditions concern us.

Other Stocks to Consider

Estee Lauder carries a Zacks Rank #2 (Buy). Other stocks in the Cosmetics segment like Avon Products Inc. (AVP - Analyst Report) and Inter Perfums Inc. (IPAR - Snapshot Report), both carrying a Zacks Rank #1 (Strong Buy) and International Flavors and Fragrances Inc. (IFF - Analyst Report), carrying a Zacks Rank #2 (Buy), are also worth considering.

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