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4 Cosmetics Stocks Worth Watching Despite Industry Headwinds
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In the Zacks Cosmetics industry, companies are navigating through inflationary pressures and supply chain obstacles. The general decline in discretionary spending due to prevailing inflationary conditions has impacted the demand for products from various companies.
Nevertheless, initiatives aimed at enhancing digital capabilities and fostering innovation have proven effective for firms such as The Estee Lauder Companies Inc. (EL - Free Report) , Coty Inc. (COTY - Free Report) , Helen of Troy Limited (HELE - Free Report) and European Wax Center, Inc. (EWCZ - Free Report) .
About the Industry
The Zacks Cosmetics industry includes companies that provide beauty and personal care products. Players in the industry manufacture, distribute, sell and market skincare, fragrance, makeup and hair care products. Many firms in the space market sell products via sales representatives, whereas some do the same through retailers, independent and chain drug stores and pharmacies, upscale perfumeries, department stores and beauty salons. These companies also operate through retailer websites, third-party distributors and in-flight and duty-free shops. Some of the products offered by industry participants include moisturizers, serums, toners and cleansers under skincare; perfume sprays, candles and soaps under fragrance; lipsticks, mascaras, powders, eye shadows, foundation and nail polishes under makeup; and shampoos, conditioner and hair color products under hair care.
Trends Shaping the Future of the Cosmetics Industry
Inflationary Headwinds: Cosmetic companies are grappling with inflationary pressures stemming from increased operating expenses, including labor, supplies and travel, among other factors. Many firms are vulnerable to shipping disruptions, which can result in delays and higher freight expenses. The escalating cost of living, higher interest rates and mounting household debt are prompting consumers to reduce discretionary spending, affecting the demand for cosmetic products.
International Risk Factors: Several industry players face potential risks due to their global footprint, including exposure to adverse foreign currency fluctuations. Political unrest, like turmoil related to current geopolitical events and the related sanctions, restrictions or other responses, might adversely impact the performance of these companies.
Innovation & Digitization – Major Drivers: Innovation and digitization are pivotal to the beauty and skincare industry. Consumers consistently anticipate unique product offerings that integrate cutting-edge technologies and expert scientific formulations. To meet evolving preferences, cosmetic companies are continuously innovating and introducing new products. The rising consumer awareness of organic skincare and ‘clean beauty’ products has also driven demand in this sector. Expanding e-commerce capabilities is a top priority for cosmetics companies, resulting in significant advancements such as virtual try-on tools, digital payment solutions and enhanced digital marketing strategies. Furthermore, companies are bolstering their brand portfolios through strategic acquisitions and alliances.
Strong Demand for Skincare & Makeup: The robust demand for skincare and makeup is a boon for numerous cosmetics companies. Consumers' heightened emphasis on self-care and adhering to healthy skincare regimens has propelled the skincare segment. Similarly, the makeup category experienced significant growth due to increased demand for beauty products, contributing to the overall expansion of cosmetics players. Companies in this sector are registering strength in fragrance and haircare products, driven by innovations and new product launches. These positive trends are expected to bolster the top-line performance of cosmetics companies moving forward.
Zacks Industry Rank Indicates Dull Prospects
The Zacks Cosmetics industry is housed within the broader Zacks Consumer Staples sector. The industry currently carries a Zacks Industry Rank #162, which places it in the bottom 35% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates solid near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
The industry’s position in the top 50% of the Zacks-ranked industries leads to a negative aggregate earnings outlook for the constituent companies. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually losing confidence in this group’s earnings growth potential. Since the beginning of March 2024, the industry’s consensus estimate for current financial year earnings has decreased 1.9%.
Before we present a few stocks that you may want to consider for your portfolio, let’s look at the industry’s recent stock-market performance and valuation picture.
Industry Vs. Broader Market
The Zacks Cosmetics industry has underperformed the Zacks S&P 500 composite and the broader Zacks Consumer Staples sector over the past year.
The industry has moved down 24.2% over this period, against the S&P 500’s growth of 26.2%. The broader sector has dropped 5.3% in the said time frame.
One-Year Price Performance
Industry's Current Valuation
On the basis of forward 12-month Price-to-earnings (P/E), which is commonly used for valuing consumer staples stocks, the industry is currently trading at 28.46X compared with the S&P 500’s 20.97X and the sector’s 17.94X.
In the past five years, the industry has traded as high as 43.55X, as low as 23.11X, and at the median of 31.71X, as the chart below shows.
Price-to-Earnings Ratio (Past 5 Years)
4 Cosmetic Stocks Worth Watching
The Estee Lauder Companies: This New York-based company manufactures and markets skincare, makeup, fragrance and hair care products. The Zacks Rank #3 (Hold) company maintains a robust presence in emerging markets where there is evident growth in demand. The company’s thriving online business serves as a significant catalyst for growth. Apart from this, it is on track to operationalize the Profit Recovery Plan for the fiscal 2025 and 2026, which is aimed at rebuilding stronger and more sustainable profitability alongside supporting sales growth. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for EL’s current fiscal year earnings per share (EPS) has moved down by a penny in the past 30 days to $2.22. The stock has increased 9.9% in the past six months.
Price and Consensus: EL
Coty: The manufacturer, marketer and distributor of beauty products carries a Zacks Rank #3. With the ongoing premiumization trends, Coty remains poised to capitalize on the robust beauty market. The company is capitalizing on these advantageous trends, buoyed by momentum in its core categories and innovative offerings in its pipeline. Coty's strategic focus on six pillars for sustainable growth, such as expanding makeup brands and mass fragrances and fortifying its skincare portfolio, continues to yield dividends. Management's dedication to optimizing the overall cost structure underscores its commitment to efficiency and profitability.
The Zacks Consensus Estimate for COTY’s current fiscal year EPS has moved down by a penny in the past 30 days to 44 cents. Coty’s shares have dipped 1.9% in the past six months.
Price and Consensus: COTY
Helen of Troy: This provider of consumer products across Beauty, Housewares and Health & Home segments carries a Zacks Rank #3. Helen of Troy is prioritizing substantial investments in its Leadership Brands. The company is strategically allocating resources to key areas to sustain growth momentum. These investments encompass consumer-centric innovation, digital marketing and media, revamped packaging, expanded production and distribution capabilities and direct-to-consumer channels. It is dedicated to crafting a global restructuring plan through Project Pegasus, which holds considerable promise.
The Zacks Consensus Estimate for Helen of Troy’s current fiscal year EPS has moved down 1.5% in the past seven days to $8.94. The stock has gained 5.3% in the past six months.
Price and Consensus: HELE
European Wax Center, Inc.: The largest and fastest-growing franchisor and operator of out-of-home waxing services in the United States carries a Zacks Rank #3. European Wax Center is riding a wave of robust business momentum, driven by its franchisees and in-center partners. EWCZ benefits from strong brand loyalty and a dependable stream of recurring revenues. The emphasis on ramping up digital promotions played a pivotal role in fostering growth.
The Zacks Consensus Estimate for European Wax’s current fiscal year EPS has remained unchanged in the past 30 days to 39 cents. EWCZ’s stock has declined 16.2% in the past six months.
Price and Consensus: EWCZ
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4 Cosmetics Stocks Worth Watching Despite Industry Headwinds
In the Zacks Cosmetics industry, companies are navigating through inflationary pressures and supply chain obstacles. The general decline in discretionary spending due to prevailing inflationary conditions has impacted the demand for products from various companies.
Nevertheless, initiatives aimed at enhancing digital capabilities and fostering innovation have proven effective for firms such as The Estee Lauder Companies Inc. (EL - Free Report) , Coty Inc. (COTY - Free Report) , Helen of Troy Limited (HELE - Free Report) and European Wax Center, Inc. (EWCZ - Free Report) .
About the Industry
The Zacks Cosmetics industry includes companies that provide beauty and personal care products. Players in the industry manufacture, distribute, sell and market skincare, fragrance, makeup and hair care products. Many firms in the space market sell products via sales representatives, whereas some do the same through retailers, independent and chain drug stores and pharmacies, upscale perfumeries, department stores and beauty salons. These companies also operate through retailer websites, third-party distributors and in-flight and duty-free shops. Some of the products offered by industry participants include moisturizers, serums, toners and cleansers under skincare; perfume sprays, candles and soaps under fragrance; lipsticks, mascaras, powders, eye shadows, foundation and nail polishes under makeup; and shampoos, conditioner and hair color products under hair care.
Trends Shaping the Future of the Cosmetics Industry
Inflationary Headwinds: Cosmetic companies are grappling with inflationary pressures stemming from increased operating expenses, including labor, supplies and travel, among other factors. Many firms are vulnerable to shipping disruptions, which can result in delays and higher freight expenses. The escalating cost of living, higher interest rates and mounting household debt are prompting consumers to reduce discretionary spending, affecting the demand for cosmetic products.
International Risk Factors: Several industry players face potential risks due to their global footprint, including exposure to adverse foreign currency fluctuations. Political unrest, like turmoil related to current geopolitical events and the related sanctions, restrictions or other responses, might adversely impact the performance of these companies.
Innovation & Digitization – Major Drivers: Innovation and digitization are pivotal to the beauty and skincare industry. Consumers consistently anticipate unique product offerings that integrate cutting-edge technologies and expert scientific formulations. To meet evolving preferences, cosmetic companies are continuously innovating and introducing new products. The rising consumer awareness of organic skincare and ‘clean beauty’ products has also driven demand in this sector. Expanding e-commerce capabilities is a top priority for cosmetics companies, resulting in significant advancements such as virtual try-on tools, digital payment solutions and enhanced digital marketing strategies. Furthermore, companies are bolstering their brand portfolios through strategic acquisitions and alliances.
Strong Demand for Skincare & Makeup: The robust demand for skincare and makeup is a boon for numerous cosmetics companies. Consumers' heightened emphasis on self-care and adhering to healthy skincare regimens has propelled the skincare segment. Similarly, the makeup category experienced significant growth due to increased demand for beauty products, contributing to the overall expansion of cosmetics players. Companies in this sector are registering strength in fragrance and haircare products, driven by innovations and new product launches. These positive trends are expected to bolster the top-line performance of cosmetics companies moving forward.
Zacks Industry Rank Indicates Dull Prospects
The Zacks Cosmetics industry is housed within the broader Zacks Consumer Staples sector. The industry currently carries a Zacks Industry Rank #162, which places it in the bottom 35% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates solid near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
The industry’s position in the top 50% of the Zacks-ranked industries leads to a negative aggregate earnings outlook for the constituent companies. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually losing confidence in this group’s earnings growth potential. Since the beginning of March 2024, the industry’s consensus estimate for current financial year earnings has decreased 1.9%.
Before we present a few stocks that you may want to consider for your portfolio, let’s look at the industry’s recent stock-market performance and valuation picture.
Industry Vs. Broader Market
The Zacks Cosmetics industry has underperformed the Zacks S&P 500 composite and the broader Zacks Consumer Staples sector over the past year.
The industry has moved down 24.2% over this period, against the S&P 500’s growth of 26.2%. The broader sector has dropped 5.3% in the said time frame.
One-Year Price Performance
Industry's Current Valuation
On the basis of forward 12-month Price-to-earnings (P/E), which is commonly used for valuing consumer staples stocks, the industry is currently trading at 28.46X compared with the S&P 500’s 20.97X and the sector’s 17.94X.
In the past five years, the industry has traded as high as 43.55X, as low as 23.11X, and at the median of 31.71X, as the chart below shows.
Price-to-Earnings Ratio (Past 5 Years)
4 Cosmetic Stocks Worth Watching
The Estee Lauder Companies: This New York-based company manufactures and markets skincare, makeup, fragrance and hair care products. The Zacks Rank #3 (Hold) company maintains a robust presence in emerging markets where there is evident growth in demand. The company’s thriving online business serves as a significant catalyst for growth. Apart from this, it is on track to operationalize the Profit Recovery Plan for the fiscal 2025 and 2026, which is aimed at rebuilding stronger and more sustainable profitability alongside supporting sales growth. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for EL’s current fiscal year earnings per share (EPS) has moved down by a penny in the past 30 days to $2.22. The stock has increased 9.9% in the past six months.
Price and Consensus: EL
Coty: The manufacturer, marketer and distributor of beauty products carries a Zacks Rank #3. With the ongoing premiumization trends, Coty remains poised to capitalize on the robust beauty market. The company is capitalizing on these advantageous trends, buoyed by momentum in its core categories and innovative offerings in its pipeline. Coty's strategic focus on six pillars for sustainable growth, such as expanding makeup brands and mass fragrances and fortifying its skincare portfolio, continues to yield dividends. Management's dedication to optimizing the overall cost structure underscores its commitment to efficiency and profitability.
The Zacks Consensus Estimate for COTY’s current fiscal year EPS has moved down by a penny in the past 30 days to 44 cents. Coty’s shares have dipped 1.9% in the past six months.
Price and Consensus: COTY
Helen of Troy: This provider of consumer products across Beauty, Housewares and Health & Home segments carries a Zacks Rank #3. Helen of Troy is prioritizing substantial investments in its Leadership Brands. The company is strategically allocating resources to key areas to sustain growth momentum. These investments encompass consumer-centric innovation, digital marketing and media, revamped packaging, expanded production and distribution capabilities and direct-to-consumer channels. It is dedicated to crafting a global restructuring plan through Project Pegasus, which holds considerable promise.
The Zacks Consensus Estimate for Helen of Troy’s current fiscal year EPS has moved down 1.5% in the past seven days to $8.94. The stock has gained 5.3% in the past six months.
Price and Consensus: HELE
European Wax Center, Inc.: The largest and fastest-growing franchisor and operator of out-of-home waxing services in the United States carries a Zacks Rank #3. European Wax Center is riding a wave of robust business momentum, driven by its franchisees and in-center partners. EWCZ benefits from strong brand loyalty and a dependable stream of recurring revenues. The emphasis on ramping up digital promotions played a pivotal role in fostering growth.
The Zacks Consensus Estimate for European Wax’s current fiscal year EPS has remained unchanged in the past 30 days to 39 cents. EWCZ’s stock has declined 16.2% in the past six months.
Price and Consensus: EWCZ