Estée Lauder (NYSE:EL) shares are up by more than 4% in Thursday’s premarket trade as BofA Securities upgraded the stock on what appears to be the emergence of a more resilient and profitable company.
Estée Lauder (EL) has struggled recently amid COVID lockdowns and headwinds from a listless Chinese economy. The travel retail business took it especially hard as the lack of foot traffic in airports showed how
dependent Estee Lauder (EL) was on that segment of the beauty market.
But the company had adapted to challenging macro conditions as well as shifting and refreshing its product offerings. “In our view, EL lost focus on product upgrades and innovation in recent years,” BofA Securities said in Thursday’s research note.
Now, however, Estée Lauder (EL) is rolling out new derma lines, increasing its marketing for its Clinique and Estée Lauder (EL) brands, freshening up the MAC and Bobbi Brown brands in makeup and initiating a marketing push on its high-end brands like LeMer.
The restructuring mix, supply chain efficiencies and sales leverage now puts $6 EPS in play for FY26 “even if China only grows by single digits,” BofA says.
While risks remain, namely a worsening Chinese economy that increases the headwinds to Estée Lauder’s (EL) turnaround, the firm is confident enough in the outlook for Estée Lauder (EL) to raise its rating on the stock to Buy from Neutral, and lift their price target to $170, a 17% premium from Wednesday’s closing price.
The firm also lifted its profit outlook for FY26 to $5.85 from $5.50 with a potential upside to $6.49.