On the day of the trade, Jim Cramer’s Charitable Trust will be buying 50 shares of Estee Lauder at a price of around $139 per share. This purchase will increase the trust’s ownership of EL to 475 shares, with a new weighting of 2.1% compared to the previous 1.9%. The decision to buy Estee Lauder was made after upgrading the rating to a 1, based on the stock price falling back to pre-earnings levels following CEO Fabrizio Freda’s optimistic comments about the company’s future growth prospects. The trust had been waiting for signs of normalization in inventories in China and the travel retail channel before increasing its position in Estee Lauder.
Analysts at Deutsche Bank have recently made a bullish call on Estee Lauder, naming it a “Catalyst Call: Buy Idea” with a positive outlook leading up to the earnings report on May 1. They anticipate the company will report results in line with or better than Wall Street estimates, despite potential challenges from a strong dollar. The analysts expect management to reiterate guidance and speak positively about market share and the Profit Recovery Plan, which aims to increase operating profit by $1.1 billion to $1.4 billion over the coming years. This positive sentiment from Deutsche Bank aligns with the trust’s view on Estee Lauder’s potential for a stock price increase following the earnings report.
While Deutsche Bank’s outlook is optimistic, they acknowledge that longer-term challenges remain for Estee Lauder, particularly in terms of category demand and execution. The trust also recognizes these concerns and has decided to keep the buy on the smaller side due to the high-risk and volatile nature of the situation. Despite recent efforts by Estee Lauder to expand its consumer reach, such as embracing Amazon and opening a premium beauty store on the platform, lingering concerns about the Chinese consumer market and market share in the United States remain.
Deutsche Bank’s analysis of Estee Lauder suggests a divergence in the bull versus bear debate over the stock’s valuation. Bulls argue for a 30-times earnings multiple as the company enters a recovery phase, while bears suggest a lower multiple due to potential challenges in the future. The trust falls on the more bullish side and has set a price target of $162 based on a 27 multiple on projected earnings. This decision is in line with the trust’s investment strategy of capitalizing on oversold market conditions, such as the recent decline in the S & P 500 Short Range Oscillator to -6.68%.
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