Tue. Feb 27th, 2024

Despite a 4% fall year-to-date, at the current levels, Estee Lauder stock (NYSE: EL) looks appropriately priced, in our view. EL stock fell from $254 in early January to $237 now. The YTD -4% return for EL marks an underperformance with the broader S&P500 index, up 3%. Looking at a slightly longer term, EL stock is down 36% from levels seen in late 2021, compared to a 17% fall in the broader S&P500 index. This 36% fall for EL can be attributed to 1. the company’s P/S ratio, which plunged 37% to 5.2x trailing revenues from 8.3x in 2020, partly offset by 2. Estee Lauder’s Revenue, which grew a modest 0.9% to $16.4 billion over the last twelve months, compared to $16.2 billion in 2021, and 3. a 1.2% fall in its total shares outstanding to 361 million currently. Our dashboard – Why Estee Lauder (EL) Stock Moved – details the factors behind this move.

Estee Lauder is an American multinational manufacturer and marketer of skincare, makeup, fragrance, and hair care products, with a presence in global markets. Skin care sales are the largest contributor to the company’s net sales, bringing in 56% ($9.9 billion) of Estee Lauder’s revenues in fiscal 2022. The company benefited from a travel recovery and opening up of economies in fiscal 2022. However, this momentum has now cooled off, and China’s recent lockdowns have weighed on its sales growth. Skincare revenues plunged 20% to $4.5 billion for the six months ending Dec 2022. Fragrance and makeup product sales also witnessed a decline over this period.

The company’s outlook of a 14% to 12% drop in sales for fiscal Q3 reflects the continued impact on demand. For the full-fiscal 2023, Estee Lauder expects its sales to decline between 7% and 5% and its earnings to fall between $4.87 and $5.02 on a per share and adjusted basis, compared to the $7.24 it reported in fiscal 2022. Due to higher costs, the company’s operating margin has declined by a significant 950 bps to 14.2% for the six months ending Dec 2022. Our Estee Lauder Operating Income Comparison dashboard has more details.

Looking at valuation, EL stock looks appropriately valued despite its recent fall. At its current level of $237, EL is trading at 5.2x trailing revenues compared to its last five-year average of 6.0x. Our Estee Lauder (EL) Valuation Ratios Comparison has more details. We estimate Estee Lauder’s Valuation to be around $256 per share, about 7% above the current market price, and represents a 5.6x P/S multiple based on TTM revenues. A slight decline in EL’s P/S multiple compared to its historical average makes sense, given the expected cut in earnings in the near term.

While EL stock looks fully valued, 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 13% in the last twelve months. 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 Mar 2023
MTD [1]
2023
YTD [1]
2017-23
Total [2]
 EL Return -2% -4% 210%
 S&P 500 Return -1% 3% 76%
 Trefis Multi-Strategy Portfolio -4% 3% 225%

[1] Month-to-date and year-to-date as of 3/23/2023
[2] Cumulative total returns since the end of 2016

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