Shares of The Estee Lauder Companies Inc. EL have touched a 52-week high of $96.23 on Jun 2, as analysts are bullish about the double-digit sales growth recorded in China in third-quarter fiscal 2017. Per sources, the high sales have encouraged the company to expand into smaller Chinese cities where the skin care category has bright prospects. Shares eventually closed a tad lower at $96.13.
Rising demand for makeup is also fuelling sales in the region. Per sources, the company supplies more than a dozen makeup brands, including Bobbi Brown and La Mer, in China. Further, the company expects to boost its cosmetics sales in China driven by rising demand for Tom Ford lipsticks and Jo Malone fragrances.
In fact, shares of this Zacks Rank #3 (Hold) company have rallied 25.6% year to date, thereby outperforming both the Zacks categorized Cosmetics & Toiletries industry and the broader sector. The industry added 1.9%, while the Zacks categorized Consumer Staples sector gained 12%.
Besides, this leading skin and hair care products manufacturer looks good on the back of its robust strategic initiatives and stellar earnings history.
Let’s Delve Deeper
Estee Lauder is one of the world's leading players in the cosmetics industry. Furthermore, its formidable portfolio of globally recognized flagship brands provides a competitive advantage and bolsters the company’s well-established market position. Also, Estee Lauder puts great thrust on innovation, which ensures revenue growth in the near term.
Notably, Estee Lauder has strong presence in the emerging markets and makes strategic acquisitions to enhance its portfolio. The acquisitions of BECCA and Too Faced strengthened its fastest growing prestige portfolio and contributed approximately to half of the reported sales growth in the third-quarter fiscal 2017.
Additionally, Estee Lauder has an aggressive marketing strategy and makes strategic resource allocation in order to optimize efficiency. The company also has a strong e-Commerce business and expects it to be a major growth engine for the upcoming years.
We note that Estee Lauder posted solid third-quarter fiscal 2017 results backed by the afore-mentioned initiatives. The company’s earnings have outpaced the Zacks Consensus Estimate in 11 straight quarters now. Consequently, management raised its earnings guidance for fiscal 2017 and expects it in the range of $3.32–$3.37 per share versus $3.29–$3.33 guided earlier. Meanwhile, the Zacks Consensus Estimate is currently pegged higher at $3.39. Moving ahead, management expects continued growth opportunities in the global prestige beauty industry, which is anticipated to grow 4–5% during the year.
However, the stock is not devoid of challenges. Lackluster retail growth in Hong Kong, declining footfall at the company’s U.S. mid-tier department stores, slowdown in consumer spending power in the Middle East and higher store operating costs have been the major concerns for the company. Also, currency volatility and economic challenges are affecting consumer behavior in few countries.
We believe the company to efficiently overcome these headwinds by its robust initiatives and become investors’ favorite. Moreover, it boasts a long-term earnings growth rate of 11.4% that looks encouraging.
Stocks that Warrant a Look
A better-ranked stock in the same industry is Inter Parfums, Inc. IPAR. Some stocks to consider from the broader Consumer Staples sector are Ollie's Bargain Outlet Holdings, Inc. OLLI and Energizer Holdings, Inc. ENR. All three stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Inter Parfums with a long-term earnings growth rate of 12% has posted an average earnings beat of 15.6% in the trailing four quarters.
Ollie's Bargain Outlet with a long-term earnings growth rate of 19% has posted an average earnings beat of 14.6% in the trailing four quarters.
Energizer with a long-term earnings growth rate of 9.8% has posted an average earnings beat of 21.6% in the trailing four quarters.
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