Is Estee Lauder Still a Buy?
Shares of Estee Lauder (NYSE: EL) are up 16% over the last 12 months, outperforming the S&P 500's 5% return. But two research firms have downgraded the stock over the past three weeks, citing valuation and risks around the beauty company's international and travel retail business from the coronavirus, now formally known as COVID-19. Given the run-up in the stock price and the potential macro impact, could it be time to consider buying Estee Lauder?
Estee Lauder has been buffered from the current softness in the cosmetics industry by its growing exposure to skin care. Skin care made up 47% of the company's total revenue in the quarter ending Dec. 31 (the second quarter of its fiscal 2020), up from 44% in fiscal 2019 and 41% in fiscal 2018. The skin care segment grew sales 28% year over year in constant currency, compared to 7% for makeup and 9% for fragrance. That contributed to 16% sales growth on the same basis, which CEO Fabrizio Freda said was the company's highest organic growth rate in 20 years in the holiday quarter.
Consumers are still spending on self-care and skin care, even as they spend less on cosmetics. According to market research company NPD Group, sales for the U.S. prestige beauty industry -- think higher-end products than you'd find at the drugstore -- were flat in 2019 at $18.8 billion, due to a 7% decrease in makeup. However, skin care sales increased 5% and hair care sales increased 16%. Sales of fragrance were up by 2%. NPD's research also shows that nearly 25% of women in the U.S. are using less makeup now, as a natural look is more popular. "It's all about wellness and a proactive skincare regimen," said Jane Hali, chief executive of retail investment researchers Jane Hali & Associates.
Source Fool.com
