What’s Next For Estee Lauder Stock After A 17% Fall In A Month?

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Upside
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Market
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Trefis
EL: Estee Lauder logo
EL
Estee Lauder

Estee Lauder stock (NYSE: EL) is down 17% in a month, underperforming the broader markets, with the S&P500 up just 0.5%. This can be attributed to its downbeat Q3 results reported last week. However, EL stock appears to have room for growth after its recent fall, as discussed below.

Estee Lauder’s Revenues were down 12% to $3.8 billion in fiscal Q3’23 (fiscal ends in June). This decline was primarily due to a 20% fall in Skin Care sales amid a slower recovery in Asia travel. Its Makeup sales were down 2%, while Fragrance and Hair Care grew 1% each. The company’s gross margin plunged by 750 bps to 69.1%, and its operating income margin stood at 7.9%, reflecting a 950 bps y-o-y fall. This can be attributed to higher manufacturing costs and other charges. Our Estee Lauder Operating Income Comparison dashboard has more details. Lower sales and a sharp decline in margin meant that its earnings plunged a significant 72% to $0.44 per share on a reported basis. The adjusted earnings stood at $0.47 per share, reflecting a 74% y-o-y decline, below the $0.51 consensus estimate.

Not only did Estee Lauder post downbeat Q3 results, but it also lowered its full-year outlook. It now expects its sales to fall between 12% and 10% for the full-fiscal 2023, compared to its prior guidance of a 5% to 7% fall. It expects its earnings to fall between 50% and 51% from the $7.24 figure it reported in fiscal 2022. This did not sit well with investors, as evident from the stock price correction.

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Looking at the stock price, we estimate Estee Lauder’s Valuation to be $236 per share, about 17% above the current market price of $201. At its current levels, EL stock is trading at 35x its forward expected earnings of $5.79 on a per-share and adjusted basis in fiscal 2024. This compares with its last five-year average of 47x, implying it has room for growth. Given the recession fears and a slower-than-expected pickup in Asia travel demand, we have assigned a slightly lower P/E multiple than its historical average.

While EL stock looks like it can see higher levels, it is helpful to see how Estee Lauder’s Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.

Furthermore, the Covid-19 crisis has created many pricing discontinuities which can offer attractive trading opportunities. For example, you’ll be surprised at how counter-intuitive the stock valuation is for Cintas vs. Merck.

With inflation rising and the Fed raising interest rates, among other factors, EL stock has fallen 19% this  year-to-date, so far. Can it drop more? See how low Estee Lauder stock can go by comparing its decline in previous market crashes. Here is a performance summary of all stocks in previous market crashes.

What if you’re looking for a more balanced portfolio instead? Our high-quality portfolio and multi-strategy portfolio have beaten the market consistently since the end of 2016.

 Returns May 2023
MTD [1]
2023
YTD [1]
2017-23
Total [2]
 EL Return -18% -19% 163%
 S&P 500 Return -1% 8% 85%
 Trefis Multi-Strategy Portfolio -1% 8% 239%

[1] Month-to-date and year-to-date as of 5/11/2023
[2] Cumulative total returns since the end of 2016

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