Weekly Notes: L’Oréal, Estée Lauder, Revlon And Avon

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Estee Lauder

Shares of cosmetics companies replicated the trend of the broader S&P 500 index, with shares gaining Wednesday, September 24, before losing all gains Thursday, September 25, to end in the red. Wednesday’s gains were driven by an 18% increase in new home sales in August, the highest pace of expansion since May 2008, signalling an improvement in consumer spending potential. However, markets declined on Thursday, partly due to investors booking profits ahead of next month’s quarterly results. Specialty cosmetics stocks fell harder than broader fast moving consumer goods (FMCG) companies during the week, pulled down by their greater discretionary nature.

In this report, we present some of the key events from the past week for four Cosmetics companies, L’Oréal (OTC:LRLCY), Estée Lauder (NYSE:EL), Revlon (NYSE:REV) and Avon Products (NYSE:AVP).

L’Oréal

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Shares of L’Oréal started the week on a soft note before declining Tuesday, September 23, with the move largely driven by data firm Markit’s monthly composite purchasing managers index which declined to 52.3, the lowest in the year so far. The purchasing managers index is a measure of activity in the manufacturing and services sectors in the Eurozone. L’Oréal’s shares declined further Thursday, September 25, on the back of growing oil concerns between Russia and European Union.

We have a price estimate of $37 for L’Oréal, about 17% higher than its current market price of $31. Our full FY14 revenue estimate stands at approximately €23.2 billion, compared to a consensus estimate of €22.5 billion. We expect non-GAAP earnings per share of €5.80 this fiscal year, compared to consensus estimates of €5.45.

Estée Lauder

Estée Lauder shares had a volatile week, declining Monday and Tuesday, gaining on Wednesday and falling yet again Thursday. Wednesday’s gains are a result of an 18% year-on-year expansion in the U.S. new home sales for August. However, shares pared down Thursday partly due to profit booking before the start of quarterly earnings season next month. Year-to-date, Estée Lauder shares lost marginally in value compared to some of its peers. The company has provided a strong top line sales growth in a volatile currency environment, buoyed by emerging market demand for prestige cosmetics products.

We have a price estimate of $86 for Estée Lauder, about 15% higher than its current market price of $74. Our full CY14 (ending December 2014) revenue estimate stands at approximately $10.8 billion, compared to a consensus FY15 (ending June 2015) estimate of $11.2 billion. We expect non-GAAP earnings per share of $2.85 this fiscal year, compared to consensus estimates of $3.02.

Revlon

Shares of Revlon were very volatile during the week, gaining Monday and falling on Tuesday, and continuing this pattern on Wednesday and Thursday. Over the course of the week, shares of Revlon were down about 2%, primarily weighed down by the exit of its Chief Financial Officer, Lawrence Alletto, on September 23. [1] Mr. Alletto was instrumental in Revlon acquiring The Colomer Group in December 2013, which reignited sales growth for the mass market cosmetics retailer. Year to date, Revlon is the best performer among the four cosmetics companies listed above, gaining 29% compared to nearly 7% in the S&P 500, driven by better-than-expected sales numbers consistently in 2014. However, operating profit margins have deteriorated significantly this year, and the exit of the CFO could add more pressure to containing costs and improving margins.

We have a price estimate of $30 for Revlon, about 7% lower than its current market price of $32. Our full FY14 revenue estimate stands at approximately $1.93 billion, compared to a consensus FY14 estimate of $1.95 billion. We expect non-GAAP earnings per share of $2.30 this fiscal year, compared to consensus estimates of $2.05.

Avon Products

Avon Products’ shares displayed more volatile movements this week than its peers. Shares gained steadily from Monday through Wednesday, before declining about 3.5% on Thursday due to a broader market contraction. On a weekly basis, Avon’s shares have declined nearly 4%, resulting from the resignation of its CFO, Kimberly Ross, that could delay its long and arduous turnaround and strain quarterly results going forward. Year-to-date, shares of Avon Products fell nearly 25% after the company reported consistent revenue declines from lapsed strategy executions and disrupted operations for multiple quarters.

We have a price estimate of $14 for Avon Products, about 9% higher than its current market price of $13. Our full FY14 revenue estimate stands at approximately $9.5 billion, compared to a consensus FY14 estimate of $9.1 billion. We expect non-GAAP earnings per share of $0.67 this fiscal year, compared to consensus estimates of $0.81.

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Notes:
  1. Revlon 8-K Filing []