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Anatomy of Success: Estee Lauder (EL)

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The Zacks Rank methodology is a unique way to discover some of the best companies to invest in, and is a useful tool for beginner and more experienced investors alike; it identifies companies both big and small that have the right characteristics to produce superior gains.

When a company earns that coveted Zacks Rank #1 (Strong Buy) label, its means they have a high probability of outperforming the market over the next one to three months. But, achieving this high rank is not an easy thing to do, as only 5% of companies within the Zacks Rank universe earn this position.

Below, we highlight a stock that has made an impressive comeback in the beauty industry, and by following our ranking system, investors could have realized major gains.

Estée Lauder (EL - Free Report)

Estée Lauder is a giant in the beauty industry, and its products are sold in over 150 countries and territories throughout the world. Its brand portfolio includes: Estée Lauder, Aramis, Clinique, Prescriptives, Lab Series, Origins, Tommy Hilfiger, M·A·C, La Mer, Bobbi Brown, Donna Karan New York, DKNY, Aveda, Jo Malone London, Bumble and bumble, Michael Kors, Tom Ford, Smashbox, Ermenegildo Zegna, Tory Burch, RODIN olio lusso, Le Labo, GLAMGLOW, BECCA, and Too Faced, among others.

2017 was a great year for Estée Lauder, and in the month of July alone, the stock was added to the Zacks Rank #1 (Strong Buy) list twice as investors were anticipating a great fourth quarter report. On July 7, shares closed at $94.28 per share and on July 21, the closing prices was $97.95, an increase of nearly 4%.

Going into its Q4 2017 earnings report, EL was a #2 (Buy). Earnings and revenues beat analyst expectations, with sales up 9% year-over-year. In particular, the company’s recent acquisitions of BECCA and Too Faced performed ahead of plan and contributed roughly 3.5 percentage points of its reported sales growth. As a result, the stock regained its Strong Buy status just a few weeks later, closing up 14% to $107.58 per share on September 22.

EL was put on the #1 list on November 3 after it reported impressive first quarter fiscal 2018 results. Diluted EPS surged 44% from the prior-year period and beat analyst estimates, while revenues increased 14% year-over-year. Additionally, Estée Lauder’s online and travel retail channels and most of its luxury and mid-sized brands posted double-digit sales gains. Five months after first becoming a #1 pick, shares increased almost 30% to $121.71 per share.

The company actually became a #1 (Strong Buy) stock again leading up to its second quarter earnings report in February. In Q2, total sales grew 17% thanks to strength in travel retail, global online, and its Asia markets; the company saw solid double-digit growth in several other markets throughout Europe, including Italy and Benelux. As a result, EL raised its full year 2018 sales and adjusted earnings forecast.

From then on, EL has managed to hang on to a #2 (Buy) rank for the better part of this year so far, though it is currently a #3 (Hold). 10 months after first becoming a #1 (Strong Buy) stock, shares of the beauty giant have gained 62% to $152.72.

This table shows the price performance of EL (in red), as well as the 12-month forward looking EPS estimate (in green) from the time the stock first earned a Zacks Rank #1 (Strong Buy). During this stretch, EL never moved lower than a Zacks Rank #3 (Hold).

By utilizing the Zacks Rank, investors are able to easily identify elite stocks that are best positioned to beat the market on a consistent basis, and how to hold those top stocks as they continue to grow.

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