On Thursday, UBS analyst Michael Lasser adjusted the price target for ULTA Salon (NASDAQ: ULTA) shares, reducing it to $550 from the previous $690.
The firm continues to endorse the stock with a Buy rating. The revision follows expectations that ULTA Salon will present a conservative outlook for its 2024 guidance, potentially forecasting sales growth in the low single-digit percentage range, contrary to the initially projected 4-5%.
ULTA Salon is anticipated to report first-quarter comparable sales growth between 1% and 2%. Lasser suggests that a more cautious guidance could lead to sales comps in the low single-digit percentage range. If fiscal year 2024 comps were to decelerate to 2-3%, earnings per share (EPS) might align with approximately $25-$26.
Even at the lower end of this range, the stock's current trading valuation is deemed attractive, hovering around 16 times earnings, compared to the five-year historical average of approximately 22 times.
The price target adjustment also considers the potential for ULTA Salon to recalibrate earnings forecasts to levels that investors might find more attainable. This reassessment could serve as a positive catalyst, especially considering the current favorable risk-reward balance.
ULTA's recent statements have indicated a slowdown in the beauty sector and its own operations, which has already set market expectations for a subdued outlook. Over the past three months, ULTA's shares have decreased by 24%, contrasting with a 5% increase for the S&P Retail Select Industry Index (XRT) and a 6% rise for the S&P 500.
The fundamental debate revolves around whether ULTA's slowdown is due to a weakening core consumer base or rising competition. Lasser believes it is likely a mix of both factors.
Despite a noted moderation in ULTA's performance and the broader beauty category in the first quarter, there are still several reasons to be optimistic about the company's ability to maintain its market share and protect its margins more effectively than what the current share price suggests.
Consequently, only slight adjustments have been made to the fiscal year 2024 and 2025 earnings estimates.
InvestingPro Insights
As ULTA Salon navigates the challenges of a conservative outlook for 2024, real-time metrics from InvestingPro provide a deeper understanding of the company's financial health and market positioning. The company's market capitalization stands at $19.34 billion, which is a testament to its significant presence in the beauty sector. Despite recent stock price volatility, ULTA's price-to-earnings (P/E) ratio is currently at 15.41, which is lower than the adjusted P/E for the last twelve months as of Q4 2024, indicating a potentially attractive valuation for investors.
The company's revenue growth of 9.78% over the last twelve months as of Q4 2024 showcases its ability to expand its business amidst market fluctuations. Additionally, ULTA's gross profit margin of 42.95% reflects its capacity to retain a substantial portion of its sales as profit. Two InvestingPro Tips that stand out in this context are the aggressive share buyback program initiated by management and the fact that liquid assets exceed short-term obligations, suggesting a strong balance sheet. These factors, combined with the company's moderate level of debt and profitability over the last twelve months, provide a solid foundation for future growth.
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