The second-quarter 2016 earnings season was a mixed one for the consumer staples sector with 75.9% of companies beating earnings estimates and 51.7% of companies surpassing top-line expectations, as seen in the Zacks Earnings Trends report. However, only 1.5% of the companies reported year-over-year increase in earnings during the quarter.
Given that the prestige beauty sector as a whole has underperformed, stocks from this sector may not be the safest bet at the moment. Here’s why one such company in particular, The Estee Lauder Companies Inc. (EL - Free Report) , should be avoided by a prudent investor.
Poor Rank and Declining Estimates: Estée Lauder carries a Zacks Rank #4 (Sell). Over the past 30 days almost all the estimates for fiscal 2017 have moved south by almost 2.82%.
Cautious Guidance Reflecting Headwinds in Fiscal 2017: Though the company reported better-than-expected fourth quarter 2016 results on Aug 19, it issued a cautious guidance for fiscal 2017. Constant currency sales and earnings growth are expected in the range of 6–7% and 8–10%, respectively which was lower than market expectations. The company expects slowing sales growth in the Middle East as retailers reduce inventory levels due to lower consumer spending, continued softness in the U.S. mid-tier department stores, and a slowdown in France and the UK compared with the historic levels. Further, Estée Lauder expects tough comparisons to hurt sales/profits in the first quarter of fiscal 2017.
Soft Consumer Spending Environment: Despite moderate improvement in economic growth in US, consumers are cautious about raising their spending levels as an increase in jobs in 2016 is yet to translate into significantly higher wages. High interest rates, higher health care costs and still-tightened credit availability continue to hurt consumer discretionary spending in the U.S. As a result, Americans are unwilling to increase discretionary spending.
Negative Currency Translation: Negative currency translation is also a matter of concern for Estée Lauder. The U.S. dollar has been trading at multi-year highs and this has affected the travel patterns among tourists as more visitors are flocking to markets where the currency was weakened. However, weak currencies in Brazil and Russia led to a decline in travel by those populations and affected sales in the travel corridors that they frequent. With a significant amount of revenues coming from international operations, Estée Lauder’s earnings remain highly vulnerable to negative currency translation.
Stocks to Consider
Some better-ranked stocks from the cosmetics and toiletries sector include Elizabeth Arden Inc. , Helen of Troy Limited (HELE - Free Report) and Inter Parfums Inc (IPAR - Free Report) . All these stocks carry a Zacks Rank #2 (Buy).
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Zacks Names "Single Best Pick to Double"
From thousands of stocks, 5 Zacks experts each have chosen their favorite to skyrocket +100% or more in months to come. From those 5, Director of Research Sheraz Mian hand-picks one to have the most explosive upside of all.
It’s a little-known chemical company that’s up 65% over last year, yet still dirt cheap. With unrelenting demand, soaring 2022 earnings estimates, and $1.5 billion for repurchasing shares, retail investors could jump in at any time.
This company could rival or surpass other recent Zacks’ Stocks Set to Double like Boston Beer Company which shot up +143.0% in little more than 9 months and NVIDIA which boomed +175.9% in one year.
Free: See Our Top Stock and 4 Runners Up >>
The second-quarter 2016 earnings season was a mixed one for the consumer staples sector with 75.9% of companies beating earnings estimates and 51.7% of companies surpassing top-line expectations, as seen in the Zacks Earnings Trends report. However, only 1.5% of the companies reported year-over-year increase in earnings during the quarter.
Given that the prestige beauty sector as a whole has underperformed, stocks from this sector may not be the safest bet at the moment. Here’s why one such company in particular, The Estee Lauder Companies Inc. (EL - Free Report) , should be avoided by a prudent investor.
Poor Rank and Declining Estimates: Estée Lauder carries a Zacks Rank #4 (Sell). Over the past 30 days almost all the estimates for fiscal 2017 have moved south by almost 2.82%.
Cautious Guidance Reflecting Headwinds in Fiscal 2017: Though the company reported better-than-expected fourth quarter 2016 results on Aug 19, it issued a cautious guidance for fiscal 2017. Constant currency sales and earnings growth are expected in the range of 6–7% and 8–10%, respectively which was lower than market expectations. The company expects slowing sales growth in the Middle East as retailers reduce inventory levels due to lower consumer spending, continued softness in the U.S. mid-tier department stores, and a slowdown in France and the UK compared with the historic levels. Further, Estée Lauder expects tough comparisons to hurt sales/profits in the first quarter of fiscal 2017.
Soft Consumer Spending Environment: Despite moderate improvement in economic growth in US, consumers are cautious about raising their spending levels as an increase in jobs in 2016 is yet to translate into significantly higher wages. High interest rates, higher health care costs and still-tightened credit availability continue to hurt consumer discretionary spending in the U.S. As a result, Americans are unwilling to increase discretionary spending.
Negative Currency Translation: Negative currency translation is also a matter of concern for Estée Lauder. The U.S. dollar has been trading at multi-year highs and this has affected the travel patterns among tourists as more visitors are flocking to markets where the currency was weakened. However, weak currencies in Brazil and Russia led to a decline in travel by those populations and affected sales in the travel corridors that they frequent. With a significant amount of revenues coming from international operations, Estée Lauder’s earnings remain highly vulnerable to negative currency translation.
Stocks to Consider
Some better-ranked stocks from the cosmetics and toiletries sector include Elizabeth Arden Inc. , Helen of Troy Limited (HELE - Free Report) and Inter Parfums Inc (IPAR - Free Report) . All these stocks carry a Zacks Rank #2 (Buy).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>
Zacks Names "Single Best Pick to Double"
From thousands of stocks, 5 Zacks experts each have chosen their favorite to skyrocket +100% or more in months to come. From those 5, Director of Research Sheraz Mian hand-picks one to have the most explosive upside of all.
It’s a little-known chemical company that’s up 65% over last year, yet still dirt cheap. With unrelenting demand, soaring 2022 earnings estimates, and $1.5 billion for repurchasing shares, retail investors could jump in at any time.
This company could rival or surpass other recent Zacks’ Stocks Set to Double like Boston Beer Company which shot up +143.0% in little more than 9 months and NVIDIA which boomed +175.9% in one year.
Free: See Our Top Stock and 4 Runners Up >>
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