The Estée Lauder Companies Inc. (NYSE: EL)
Based in Midtown Manhattan, New York City, The Estée Lauder Companies Inc. is an American global cosmetics firm that produces and markets cosmetics for the skin, hair, and nails. After L'Oréal, it is the second-largest cosmetics company in the world. Since announcing the acquisition of Tom Ford, Estée Lauder has been on investors’ radar and has seen an increase in mentions by a massive 150% over the last day, prompting investors to wonder whether to take a position in the company or not. Currently, shares of Estée Lauder trade at $230.40.
There are numerous reasons for Estée Lauder to gain positive hype, and here are some of them.
According to their Q3 report, earnings of $1.37 per share topped analysts’ expectations of $1.31.
Estée Lauder announced a "transformative deal" to acquire Tom Ford for $2.8 billion. This deal enables EL to keep the TOM FORD beauty line, capture a larger share of the profits and incentivises them to intensify efforts to expand their footprint in Luxury beauty. At the same time, licensing the non-beauty components of the business minimises integration/execution risk.
Bank of America analysts raised the price target on EL stock to $230 per share from the prior $218 and weighed in positively on the deal.
Analysts cite a combination of rekindled demand for foreign cosmetics and a slight policy shift in making these goods easier to ship to China itself.
September's consumer spending within the United States topped expectations by growing 6.2% year over year, despite still-rampant inflation and frequent headlines about job lay-offs. Further, the National Retail Federation is calling for holiday spending growth of between 6% and 8% above last year's levels.
Although Estée Lauder has generated quite a bit of positive hype, it is not exempt from negatives, and here are some of them.
The 40% pullback from January's peak is increasingly rooted in economic weakness, in general, and trouble in China, in particular. Many retailers here and abroad scaled back inventory levels on worries of a slowdown.
Ongoing lockdowns in China meant to curb the continued spread of COVID-19 are just making it tough to do business there. These measures are a key driver of last quarter's 5% year-over-year dip in revenue and an even bigger 24% tumble in per-share profits.
Estée Lauder’s hype stems majorly from the new exclusive deal they’ve made to acquire Tom Ford, however, apart from this, the company is still a leader in the luxury fashion industry in its own right and has seen a fair bit of financial success. Major headwinds include economic weakness and lockdowns in China. Although the first doesn’t seem to be going away very soon, Beijing has started lifting lockdowns and is likely to continue doing so. Given that Estée Lauder is adding Tom Ford to its company, it seems like it may recover from other pitfalls and seems like a company investors could potentially add to their radar.
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