Estee Lauder Ahead Of Industry: What's Behind The Rally?
Zacks Investment Research | Jul 05, 2017 04:30AM ET
Estée Lauder Companies Inc.’s (NYSE:EL) shares have been gaining momentum driven by brand strength, rising demand for beauty products and a strong presence in emerging markets. In the past six months, shares of this leading manufacturer and marketer of cosmetics have outperformed the Zacks categorized Cosmetics and Toiletries industry. In the said time frame, shares reflected a growth of 21% compared with the industry’s gain of 10.1%.
So what are the factors contributing towards the growth of the company? Let’s find out.
Factors Driving Performance
As a global leader in prestige beauty products, Estée Lauder sells more than 25 brands in over 150 countries. A formidable portfolio of globally recognized flagship brands, which includes M.A.C and Jo Malone London, have provided a competitive advantage and bolsters the company’s well-established market position.
Estee Lauder has been able to enhance its portfolio, through several strategic acquisitions. The acquisitions of BECCA and Too Faced has strengthened its fastest growing portfolio and contributed approximately half the reported sales growth in the third quarter of fiscal 2017. The recent investment in DECIEM, a rapidly growing multi-brand company, will also boost sales.
Further, the company ensures constant revenue growth through innovation. This has helped Estée Lauder to venture into manufacturing different types of skin care and makeup products. Moreover, the rising demand for beauty products, particularly in the luxury arena and makeup, has contributed toward robust growth. Looking forward, the company expects to remain focused on prestige cosmetics industry that has been growing steadily for many years and continues to grow faster than other household and personal care sectors.
The company has also been able to insulate itself from the macroeconomic headwinds in the matured markets by establishing a strong foothold in emerging ones. The Middle East, North Africa, sub-Saharan Africa and Asia Pacific markets offer extensive untapped potential for the company. Moreover, increasing demand for make-up is fuelling sales of products like M.A.C. and Tom Ford in China.
In addition to expansion, innovation and strategic acquisitions, Estee Lauder also banks upon aggressive marketing strategies through television and digital media. The company focuses on cost reduction and resource reallocation through initiatives such as the Leading Beauty Forward program.
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Comparison with Industry
Bottom Line
Lower retail growth in Hong Kong, decline in spending by travelers and currency headwinds have posed a few concerns for Estée Lauder, of late. However, the company’s focus on expanding in emerging markets, aggressive marketing strategies and focus on e-commerce growth are expected to deliver sturdy growth. Better-than-expected earnings and sales in the third-quarter fiscal 2017 have also enhanced investors confidence in this Zacks Rank #2 (Buy) stock.
Other Key Picks
Investors may also consider other stocks from the same sector, such as Constellation Brands, Inc. (NYSE:STZ) , B&G Foods, Inc. (NYSE:BGS) and Aramark (NYSE:ARMK) , all carrying a Zacks Rank #2. You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here .
Constellation Brands has an average positive earnings surprise of 11.7% for the past four quarters, with a long-term earnings growth rate of 18.2%.
B&G Foods generated an average positive earnings surprise of 2.1% over the trailing four quarters and a long-term earnings growth rate of 10%.
Aramark has an average positive earnings surprise of 4.5% for the last four quarters and a long-term earnings growth rate of 12%.
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