Estée Lauder (NYSE:EL) recently went for a two-for-one common stock split and additional shares were issued to the stockholders last Friday. This doubles the company’s common stock outstanding (that stood at about 192 million in Oct 2011). Accordingly, we have a Trefis price estimate of $58 for Estee Lauder stock. The company also paid a 40% higher dividend in December 2011, compared to December 2010. Riding on high growth momentum in the prestige beauty segment, consistent double digit growth rates and expanding market share despite weak macroeconomic conditions, the company’s stock swelled by more than 40% in 2011. Estee Lauder, one of the leading cosmetics and beauty care players globally, competes with others such as Revlon (NYSE:REV), L’Oreal (PINK:LRLCY) and Avon Products (NYSE:AVP).
What’s a Stock Split?
A stock split divides a company’s existing stocks while maintaining their total dollar value. So while there is no change in the value of the shares outstanding, in a 2:1 stock split every shareholder with one stock gets an additional share and the total number of shares outstanding doubles and halves the share price in this case. There is no change in the market capitalization.
Many times companies decide to do stock splits when a company’s shares rise to a high dollar value, making it too expensive for many investors to buy in round lots. Stock split make the stocks seem more affordable to smaller investors and can help provide greater access and liquidity in the market. A stock split could also signal the market that the company’s stock price has been increasing and continued optimistic outlook for long-term growth, again lifting demand and prices.
Stock Strong Post Earnings
Estee Lauder’s enviable double-digit revenue growth amid a weak macro backdrop and corresponding earnings growth is responsible for the stock’s impressive run over the past few quarters. As the luxury sector remained strong with sales growth exceeding 13% in 2011, Estée Lauder achieved 18% growth last quarter given its strong prestige beauty and luxury products portfolio. It grew its market share in its top priority Skin Care category by 1.3%, the division that contributes over 53% of Estée Lauder’s stock price.
With excellent international growth, Estee Lauder also exceeded its operating margins target of 12-13% by fiscal 2013, two years in advance and now has a new 15% operating margin target.