Estee Lauder (NYSE:EL) shares erased most of the pre-market gains after CNBC’s Jim Cramer said the reports about activist investor Nelson Peltz “exploring a possible shakeup” at the beauty company are “not true.”
The stock traded over 5% higher in pre-market Monday after the New York Post reported yesterday that activist investor Nelson Peltz is exploring a possible shakeup, including the removal of the long-standing CEO Fabrizio Freda.
Peltz is reportedly looking at helping the company to cut costs and “rejigger Estée Lauder’s brands,” while the sale of the company is also not out of the question.
The Estee Lauder business is controlled by the Lauder family with Chairman Emeritus Leonard Lauder, 90 years old, still seen as an important figure at the company. Overall, the Lauder family has 84% of voting control.
Stifel analysts believe getting the Lauder family on board is “important for managing change and necessary for a sale.” The analysts added that “Peltz’s potential involvement creates a win-win for EL shareholders.”
“Lauder’s sales growth has modestly underperformed large prestige beauty peers since 2018, with more significant underperformance since early 2022, with recent weakness partly a result of product/geographic mix, particularly Travel Retail and skincare. We also think there is significant opportunity to increase operating margin partly reflecting underperformance in key expense lines in recent years, including gross margin and G&A despite ongoing productivity initiatives and reduced advertising spend,” they said in a note.
The management team is defended at Oppenheimer with analysts reminding investors that CEO Fabrizio Freda has a track record of executing “at a very high level outside of recent challenges.”
“We remain optimistic that the current management team can drive a material positive earnings inflection over time and a return closer to historical margins. However, the timing and shape of the recovery are more difficult to pin down at this juncture,” they wrote in a note.
The analysts also believe that Peltz’s potential involvement “could potentially fuel more aggressive steps to drive a return to historical profitability and could represent a positive for shares, in our view.”
“EL continues to represent a top pick for us following the painful earnings reset last week, but clearly represents a show me story for now.”
They also believe that the full sale of the company is less likely given Lauder’s family control of the business.
EL shares trade 1.3% higher at the New York open.