Estee Lauder (EL) Last Update 9/12/21
Related: LRLCY WW
% of Stock Price
Revenue
Gross Profits
Free Cash Flow
Estee Lauder
STOCK PRICE
DIVISION
% of STOCK PRICE
Skin Care
81.4%
$295
Makeup
12.0%
$44
Fragrance
5.6%
$20
Hair Care
1.0%
$4
Net Debt
0.5% $2
TOTAL
100%
$363
$361.06
Yours
Trefis Price
N/A
$328
Market
 
Top Drivers for Period
Key Drivers
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RECENT NEWS AND ANALYSIS

Potential upside & downside to trefis price

Estee Lauder Company

VALUATION HIGHLIGHTS

  1. Skin Care constitutes 81% of the Trefis price estimate for Estee Lauder's stock.
  2. Makeup constitutes 12% of the Trefis price estimate for Estee Lauder's stock.

WHAT HAS CHANGED?

Full-year 2021 Earnings

Estee Lauder reported net sales of $16.2 billion in FY 2021, up from $14.3 billion in FY 2020, since demand has been picking up as lockdowns are being lifted. Gross margins rose from 75.2% to 76.4% over this period, and a $1.2 billion drop in impairment charges saw operating income jump from $606 million in FY '20 to $2.62 billion in FY '21, driving EPS up to $7.91 from $1.90.

POTENTIAL UPSIDE & DOWNSIDE TO TREFIS PRICE

Skin Care

Estee Lauder's Skin Care Market Share: Estee Lauder's Skin Care Market Share expanded from 6.6% in 2008 to 8% in 2014. However, its share declined to ~7% in 2015 and 2016, partly due to cannibalization of its older products, and partly due to a shift in order realizations following its SMI implementation. However, in 2018 the skin care segment alone grew by 24% and we forecast Estee Lauder's skin care product market share is expected to gradually grow to over 10% by the end of our forecast period. There could be a marginal downside to our price estimate, if the market share were to remain flat throughout the forecast horizon.

Estee Lauder's Skin Care EBITDA margin: Estee Lauder's Skin Care EBITDA Margin increased from 20% in 2008 to 26.2% in 2012, before declining to 25.7% in 2013. The EBITDA margin grew to ~27% in 2014 and remained at almost the same level in 2015 before increasing to around 29% in 2016. As of FY 2021, this metric stands at 36.5%. We expect margins to remain near 42% by end of our forecast period. There could be almost 20% downside to our price estimate, if margins were to decline to the 2008 levels of 20% over our forecast period.

Makeup

Estee Lauder's Makeup Market Share: We currently forecast Estee Lauder to gain share in the global makeup market from 14% in 2016 to 19.2% in 2018, it is expected to reach almost 24% by the end of our forecast period. There could be a marginal downside if Estee Lauder fails to gain market share over our forecast period.

Estee Lauder's Makeup EBITDA margin: Estee Lauder's Makeup EBITDA Margin increased from 19% in 2008, to 22% in 2016, but have dropped to -4.5% in FY 2021, as makeup has taken a backseat due to work from home and quarantine. We expect it to gradually increase to 15% going forward. There could be close to 10% downside to our price estimate if margins were to rise only to 10%.

BUSINESS SUMMARY

Estee Lauder manufactures and markets premium makeup, skin care, fragrance, and hair care products in the personal and beauty care segment of the market. Estee Lauder's main competitors consist of cosmetics companies such as L’Oreal, Shiseido Company, LVMH Moet Hennessey Louis Vuitton, Revlon, Coty, and Procter & Gamble Company.

Estee Lauder's major brands include Estee Lauder, Aramis, Clinique, M-A-C, Bobbi Brown, La Mer, and Aveda, along with fragrance and cosmetics sold under brands such as Donna Karan, Tommy Hilfiger, Micheal Kors, and Sean John.

Premium priced products that are not branded, yet relatively expensive, are sold through limited distribution channels consisting primarily of upscale department stores, specialty retailers, upscale perfumeries, pharmacies, prestige salons and spas, free standing company owned stores and spas, company websites, authorized retailer websites, stores on cruise ships, direct response television, and in-flight and duty free shops.

Despite a global presence, about 40% of Estee Lauder's net sales come from the Americas, with Europe, Middle East and Africa contributing 38%, and Asia-Pacific constituting the remaining 22%. The company's increased focus on the Asia-Pacific market is expected to further increase in the future.

SOURCES OF VALUE

The Skin Care and Makeup segments have the highest contributions to Estee Lauder's value. Skin Care forms the priority category for the company, contributing ~50% of Estee Lauder's stock value, and Makeup contributes around 40%. The Skin Care segment is also the most profitable of all its beauty products, generating an EBITDA margin of 27%, compared to the company average of around 24%.

Market sizes and market shares in Skin Care Vs Makeup

The Skin Care market grew by 7.4% in 2014, and 5% in 2015 and 2016. The Skin Care market is currently valued close to $130 billion and could cross $170 billion in the next five years.

In the Makeup category, Estee Lauder had a higher market share of around 14% in 2016 (that increased from 12% in 2010), but the overall market size of the Makeup segment is about half of skin-care. The overall Makeup market is currently valued around $70 billion and could exceed $80 billion by the end of our forecast period.

KEY TRENDS

Booming Skin Care due to anti-aging creams

Anti-aging creams and anti-cellulite skin care products are in high demand among aging populations in developed countries notably Japan (oldest demographic), the US, and Western Europe. Half of Estee Lauder's skin-care business comes from anti-aging products. The anti-aging market comprises of those products that can treat multiple signs of skin aging at one time, and is a fast-growing segment under the anti-aging beauty products. Estée Lauder launched its first global anti-aging cream in Europe in February 2012 and a China specific skin care brand Osiao in October 2012.

Growth of natural products categories and "Masstige" segment, as well as male product lines

There is a growing demand for natural / organic products in most countries, a trend led by the developed markets in the US and Western Europe. Additionally, there is an increased preference for less synthetic, eco-friendly, and more natural products and packaging.

There is a growing trend towards the so-called "Masstige," or premium brands sold at lower prices through mass distribution. In addition, beauty care products focused on men is the latest niche being targeted by most players globally. In developed markets, particularly in the US and Western Europe, the introduction and extension of the men’s product lines is a major source of growth.