Analysts at RBC Capital and Piper Sandler changed the ratings of two US beauty stocks in notes to clients Wednesday, with one upgrade and one downgrade.
Analysts at RBC raised their rating for Estee Lauder (NYSE:EL) to Outperform from Sector Perform, with a price target of $131 a share. They stated that they believe EPS and investor sentiment have troughed and that the risk-to-reward profile now skews favorably.
The firm upgraded the stock despite acknowledging that EL's top line will likely grow slower than it had originally modeled. This is primarily due to lower assumed growth rates in China, said RBC.
"While we moderate our long-term revenue growth expectations, we believe that EL's margin opportunity is very tangible and has additional room to grow," the investment bank wrote. The analysts noted that even with conservative sales growth and margin expansion estimates, they arrive at a fair value price target of $131.
On the other hand, analysts at Piper Sandler downgraded Ulta Beauty (NASDAQ:ULTA) to Neutral from Overweight, cutting the price target to $404 from $494 per share, citing further analysis of the competitive and promotional state of the business and "a deeper understanding of possible scenarios coming out of the October investor day."
"The bottom line is that management looks to be increasingly pulling on traffic drivers, and despite efforts to improve efficiencies in the supply chain, which we've historically been positive on," wrote Piper Sandler.
They don't believe it's enough to offset the several sources of margin dilution. As a result, the firm believes "a rather lackluster long range plan come October is probable, which could leave shares range-bound."
However, the firm clarified that this is not a call to sell into the FQ2 print or the October investor day but a view that it might take beyond the next 12 months to re-ignite the company's shares.