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3 Reasons Why Estee Lauder (EL) is a Hot Investment Pick


The Estee Lauder Companies Inc. EL has been undertaking product launches and pursuing strategic acquisitions to strengthen its portfolio. Additionally, it has been witnessing robust growth in its online business segment. These apart, the company’s solid focus on enhancing its travel retail business remains a key catalyst.

All these factors helped the company to deliver impressive first-quarter fiscal 2019 results, wherein earnings and sales grew year over year and surpassed estimates for the 17th and seventh straight time, respectively. While earnings gained from robust sales and efficient cost management backed by the company’s Leading Beauty Forward initiative, revenues were fueled by strength across most geographic regions, brands (especially MAC) and product categories (with skin care standing out). All this propelled management to lift its earnings view for the fiscal year. (Read: Estee Lauder Stock Up on Q1 Earnings Beat, Raised View)

Following the quarterly results, the stock outperformed its industry in the past three months. Shares of this Zacks Rank #2 (Buy) company have gained approximately 7% compared with the industry’s 2.4% growth. Meanwhile, the S&P 500 index declined 1.1%.

So, let’s delve deeper into the catalysts.

Solid Online Business: Bode Well

Estee Lauder has a strong online business and the company expects it to be a major growth driver for the upcoming few years. The company is implementing new technological and digital experiences, including online booking for each store appointment, omni-channel loyalty programs and high touch mobile services. Markedly, these initiatives and the company’s digital-first mindset have been boosting the company’s online sales, thus acting as a key catalyst for its overall top-line performance.

During the first quarter, the company’s e-commerce sales rose considerably across all channels. In fact, the company’s brand sites grew in double digits, buoyed by robust traffic. Further, the company remains focused on widening its global online presence by adding new sites and expanding retailer distributions. To this end, the company launched Jo Malone at Tmall in China and also introduced five brands on ASOS (in UK) to draw millennials.

Strategic Buyouts: Key Catalyst

The company has made several strategic buyouts to enhance its portfolio. In fact, the acquisitions of BECCA and Too Faced (during first-quarter fiscal 2017) have strengthened its fastest growing prestige portfolio. Notably, retail sales of Too Faced witnessed a solid increase in North America in the first quarter, courtesy of new products. The investment in DECIEM — a fast-growing multi-brand company is also likely to aid beauty sales. In this regard, Estee Lauder previous moves include the buyout of sophisticated Paris-based brand — By Kilian and the takeover of key prestige skin care brands — RODIN olio lusso and GLAMGLOW.

Apart from skin care, Estee Lauder has acquired high-end fragrance and lifestyle brand, Le Labo (The Lab), and high-end fragrance brand Editions de Parfums Frédéric Malle. Such acquisitions have aided the company expand its portfolio besides helping it attain the respective loyal customer base. Per management, total sales from brands acquired over the past few years advanced considerably during the first quarter of fiscal 2019.

Travel Retail to Boost Sales Further

Estee Lauder’s focus on enhancing its travel retail business remains a major sales driver for the company. Backed by broad-based growth across countries and brands, travel retail sales continued to accelerate in the first quarter. In fact, the company’s travel retail sales have been benefiting from a rise in traffic, effective launches, impressive marketing strategies and unique product range.

Moving ahead, the company expects its travel retail business to gain from rising passenger traffic, favorable fundamentals and higher conversions. Moreover, the company remains committed toward undertaking more initiatives to enhance conversions through strategic initiatives. To this end, it has been undertaking various endeavors like better customer insights; enhanced merchandising and improved digital marketing.

These upsides encouraged management to raise its outlook for fiscal 2019, which has clearly buoyed investor optimism on Estee Lauder’s ongoing performance. Evidently, the Zacks Consensus Estimate for fiscal 2019 and 2020 moved north 8 cents and 6 cents to $4.83 and $5.33, respectively, over the past 30 days.

Looking for High-Performing Stocks? Check These

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Helen of Troy Limited HELE delivered an average positive earnings surprise of 21.2% in the trailing four quarters. The company carries a Zacks Rank #2.

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