Estee Lauder (NYSE: EL) reported its Q1’24 results earlier this week (the fiscal year ends in June), with revenues meeting and earnings beating the street estimates. However, the stock plunged 19% following the earnings release due to downbeat guidance. The company reported revenue of $3.5 billion and an adjusted loss of $0.11 per share, compared to the consensus estimates of $3.5 billion in sales and $0.22 loss per share. In this note, we discuss Estee Lauder’s stock performance, key takeaways from its recent results, and valuation.
EL stock has suffered a sharp decline of 60% from levels of $265 in early January 2021 to around $105 now, vs. an increase of about 15% for the S&P 500 over this roughly 3-year period. However, the decrease in EL stock has been far from consistent. Returns for the stock were 39% in 2021, -33% in 2022, and -58% in 2023 (YTD). In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 11% in 2023 (YTD) – indicating that EL underperformed the S&P in 2022 and 2023.
In fact, consistently beating the S&P 500 – in good times and bad – has been difficult over recent years for individual stocks; for heavyweights in the Consumer Staples sector, including WMT, PG, and COST, and even for the megacap stars GOOG, TSLA, and MSFT.
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In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index, less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.
Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could EL face a similar situation as it did in 2022 and 2023 and underperform the S&P over the next 12 months – or will it see a recovery? From a valuation perspective, EL stock looks attractive. We estimate Estee Lauder’s Valuation to be $159 per share, reflecting a significant 52% upside from its current levels of $105. At its current level, EL stock is trading at just 2.4x its forward revenues compared to its last three-year average of 6.4x. This recent decline in EL stock can be attributed to a significant cut in its fiscal 2024 guidance, with revenue now expected to be in a range between down 2% and up 1% from fiscal 2023. Earnings are expected to be in the range of $2.17 and $2.42, reflecting a meaningful decline from the $3.45 figure in fiscal 2023 and also much lower than the consensus estimate of $3.62.
Estee Luder’s revenue of $3.5 billion in Q1 was down 10% y-o-y. The company reported a 5% rise in Fragrance and a 1% rise in Makeup sales, but this was more than offset by a 22% decline in Skin Care and a 6% fall in Hair Care sales. This can be attributed to a weakening consumer spending environment and slower-than-anticipated demand pick-up in Asia. Gross margin plunged 440 bps, and operating margins dropped 1400 bps compared to the prior-year quarter due to lower sales and higher costs. The company’s adjusted EPS stood at $0.11, vs. $1.37 in Q1 2023, reflecting a sharp 92% decline.
Given the significant decline of 58% YTD, EL stock looks attractive at 2.4x forward sales, and investors will likely be better off picking it for solid long-term gains, in our view. That said, weak demand in Asia, higher costs, and the impact of a potential recession on Estee Lauder’s business are key risk factors to realizing these gains.
While EL stock looks attractive, 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.
|S&P 500 Return||1%||10%||89%|
|Trefis Reinforced Value Portfolio||1%||19%||509%|
 Month-to-date and year-to-date as of 11/2/2023
 Cumulative total returns since the end of 2016