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Bull of the Day: Ulta Beauty (ULTA)

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Ulta Beauty (ULTA - Free Report) is a Zacks Rank #1 (Strong Buy) that operates as a retailer of beauty products in the United States. The company offers a wide range of products including cosmetics, fragrance, skincare, hair care, bath and body products, and salon styling tools in stores.

Unlike a lot of other stocks out there, the stock has held up well in 2022,. The question now is if this stock breaks out when the market recovers.

If investors look at recent earnings, rising estimates and relative strength, they see a stock that has a lot of prospects to run higher into the end of the year.

More about ULTA

The company was founded in 1990 and is headquartered in Bolingbrook, IL. It employs 16,500 people and has a market cap of $20 billion. Ulta sells more than 25,000 products from about 500 well-established and emerging beauty brands across all categories and price points.As of March, the company operated 1,308 retail stores across 50 states

The stock has a Zacks Style Score of “A” in Growth, but “D” in Value. Investors are betting that the growth the company continues to see, helps the stock come into the valuation. The stock pays no dividend.

Q1 Earnings Beat

On May 26th, ULTA reported a 42% EPS beat for Q1and beat on revenues. This was the company’s eight beat on EPS in a row and the tenth out of the last twelve quarters.

Same Store Sales (SSS) came in at +18% and they affirmed their plan to open 50 new stores in 2022.

Ulta raised 2022 SSS guidance to 6-8% from 3-4% and hiked their 2022 EPS guidance to $19.20-20.10 v the prior $18.60. They took their revenue expectations higher as well, seeing $9.35-9.55B v the $9.20B expected.

Management said that solid execution, paired with strong guest demand, fueled their performance and helped with ULTA gaining market share.

Estimates Rising

The big earnings beat and raised guidance is helping estimates tick higher over the last month.

For the current quarter, estimates have gone from $4.15 to $4.76, a move of 15%. For the current year, we have seen a move of 8% higher, with estimates moving from $18.60 to $20.08.

And this momentum looks like it will continue, with next year’s estimates moving from $20.59 to $22.00, or 7%.

With those estimates going higher, analysts are lifting their price targets for the stock.

JPMorgan reiterated their Overweight on the name, lifting their target to $480 from $460. Barclay also reiterated an Overweight and lifted their target to $491 from $469.

Relative Strength

This year has not been kind to stocks. Many names are down 20% or more, with some tech stocks looking at serious losses anywhere from 50-80%.

In comparison, ULTA is only down about 1% in 2022. This relative strength should be a sign for investors that this stock is ready to breakout when market sentiment improves.

The Technical Take

Looking at the chart, the $340 level has been key all year, with buyers stepping up each time the stock dipped below. This area was the 61.8% retrace drawn from May 2021 lows to 2021 highs. If the stock can break above the post-earnings highs, $450 should be in the cards.

For longer-term investors, $505 is the 161.8% Fib extension draw from the April to May sell off.

Looking at the moving averages, the 200-day offered post-earnings support at $386. From there, the 50-day MA acted as resistance under the $400 level, but that has recently broken. Look for those levels to act as support as the stock tries to breakout.

In Summary

When markets sell off, the stocks that hold price are likely the winners in the next bull cycle. Both the technical and the fundamentals are lining up for ULTA and all the stock needs is market sentiment to improve to get the break higher.

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