Estée Lauder is set to report its Q3 fiscal 2024 results on May 1, with expected sales of $3.9 billion and earnings of $0.46 per share, slightly below consensus estimates. However, the company anticipates improved performance in the second half of the fiscal year due to expected recovery in Asia travel and mainland China. Despite the potential for a slightly lower-than-expected quarter, there may be room for the stock to grow from its current levels under $145.
Over the past few years, EL stock has experienced significant fluctuations, declining 45% from early 2021 to around $145. Comparatively, the S&P 500 saw a 35% increase during the same period. EL underperformed in 2022 and 2023, with returns of -33% and -41% respectively, while the S&P 500 saw a decrease of -19% in 2022. However, the Trefis High Quality Portfolio, which includes EL stock, has outperformed the S&P 500 each year in that period.
With the uncertain macroeconomic environment, including high oil prices and elevated interest rates, there is concern about whether EL will face another period of underperformance in the next 12 months or experience a recovery. From a valuation perspective, there appears to be room for growth, with an estimated value of $163 per share, indicating over a 10% potential upside from its current price of $145. This valuation is based on a 4x forward sales multiple.
In the previous quarter, Estée Lauder reported a 7% year-over-year decrease in revenue, with declines in Skin Care, Makeup, Hair Care, and flat Fragrance sales. This was attributed to weakening consumer spending and soft prestige beauty demand in China. However, the company did see a rise in operating margin to 13.4% and an adjusted EPS of $0.88, a 43% decline from Q2 2023.
Looking ahead to the current quarter, Estée Lauder is expected to benefit from a rebound in mainland China and Asia travel demand, with potential improvement in prestige beauty demand in China. The company anticipates 4% to 6% organic sales growth and adjusted earnings in the range of $0.36 to $0.46 per share in Q3. Despite the challenges in the market, there are positive indicators for Estée Lauder’s performance in the upcoming quarter.
While EL stock may seem to have limited growth potential, it is important to consider how Estée Lauder’s peers are performing on key metrics. By evaluating these comparisons, investors can gain valuable insights into the company’s position within the industry and make informed decisions about investing in Estée Lauder.
