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Why Estee Lauder is a Good Pick despite Market Volatility

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We issued an updated research report on the Estee Lauder Companies Inc. (EL - Free Report) on Jul 5.

Fundamentals

Estee Lauder has been posting better-than-expected results over the past several quarters, backed by organic sales growth, product innovation and cost savings measures.

In the third quarter of fiscal 2016 reported on May 3, 2016, Estee Lauder’s earnings and revenues beat the Zacks Consensus Estimate, thanks to new product launches and strong sales of luxury fragrances. Earnings of $0.73 per share inched up 2.8% year over year on 0.4% growth in revenues. Sales improved across all geographies, except for Asia Pacific.

Product Innovation

The company is carrying on consistent product innovation and expects to invest in new products as well as services to make buying easier for customers. A special collection of makeup and skin care – The Estee Edit – was launched under the Estée Lauder brand in Mar 2016. The collection primarily targets the North American Sephora stores and the premium consumers who visit these stores in the U.S. and Canada as well as sephora.com – its online platform.

Estee Lauder Advanced Night Repair PowerFoil Mask launched during the third quarter fiscal 2016 was well received, particularly in Asia, and boosted the brand's important Advanced Night Repair franchise. Clinique Pep-Start Eye Cream, debuted exclusively in Sephora in the U.S., was also an instant hit.

Marketing

Estee Lauder emphasizes on marketing. The company is investing in advertising, especially in TV and digital media. It also reaches out to customers through social networking sites like Facebook, where its brands cover more than 100 pages. 

Social media is helping the company drive makeup sales with how-to-do videos, tips from consumers and visuals of makeup transformations. For instance, M•A•C Instagram features photos submitted by global artists, illustrating their creativity and talents tied to products and trends. This kind of social media interaction creates an ongoing dialog between the brand and its consumers and in turn, helps drive sales.

Estee Lauder’s peers like Elizabeth Arden Inc. , Revlon Inc. and Nu Skin Enterprises Inc. (NUS - Free Report) are also investing in marketing  strategies to boost sales.

Bottom Line

Several macroeconomic issues have recently spiked volatility in the global market. Amid such adverse factors, investing in a safe haven sector is important and hence Estee Lauder fits the bill.

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