On Jan 13, we reiterated our Neutral recommendation on
Estee Lauder Inc.
). While the company has been delivering solid results, the
continued slowdown in the European economy remains a concern.
Why Maintained at Neutral?
Estee Lauder posted better-than-expected results in all the
last four quarters. Organic sales growth, product innovation and
cost savings measures have remained company's strong points.
However, increased input costs and macro-economic headwinds have
remained the headwinds.
Moreover on Oct 31, 2013, Estee Lauder raised the lower end of
its earnings guidance for fiscal 2014 to a range of $2.80-$2.87,
compared to the range of $2.74-$2.87. The company, however,
maintained its sales growth guidance of 6%-8% increase in
Overall, we are encouraged by Estee Lauder's booming travel
retail business. Rising air traffic is expected to boost sales in
the Travel Retail segment in the upcoming quarters. The company
has also witnessed a rise in online sales, which is impressive.
Moreover, the company's continuous product innovation helps it to
maintain market share amid difficult conditions.
Innovation remains an integral part of the company and helps
it to drive profitable growth. In Sep 2013, Estee Lauder rolled
out the Modern Muse fragrance brand in selected countries, which
became a bestseller at Harrods in the U.K. and was among the top
10 women prestige fragrances in the U.S. Other successful
fragrances launched during the quarter include the Michael Kors
Collection, Tory Burch and Zegna Uomo, all of which were well
However, the difficult consumer spending environment remains a
concern. Slow job growth, high interest rates and tightened
credit availability continue to hurt costumer discretionary
spending. The persistently sluggish European economic conditions
also create an overhang.
Moreover, Estee Lauder's close peers like
Elizabeth Arden Inc.
Avon Products Inc.
) make frequent strategic acquisitions and alliances to expand
their market. However, we see no such strategic alliances for
Estee Lauder holds a Zacks Rank #3 (Hold)
Other Stocks to Consider
A better-ranked stock in the same industry that looks
attractive at the current levels is
Nu Skin Enterprises Inc.
) sporting a Zacks Rank #1 (Strong Buy).
AVON PRODS INC (AVP): Free Stock Analysis
ESTEE LAUDER (EL): Free Stock Analysis Report
NU SKIN ENTERP (NUS): Free Stock Analysis
ELIZABETH ARDEN (RDEN): Free Stock Analysis
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