The convergence of the beauty category with the health and wellness segment has increased the addressable market for all players, according to Goldman Sachs.
Soft demand in China and channel disruptions in the U.S. have triggered a broad selloff in the beauty category year to date, "creating attractive stock-picking opportunities," analyst Patty Kanada said in the note.
Kanada initiated coverage of two beauty stocks:
The elf Beauty Thesis
The analyst initiated coverage of elf Beauty Inc (NYSE: ELF) with a Buy rating and a price target of $165.
elf Beauty is among the "fastest growing and most disruptive players in beauty," Kanada said in the initiation note. The company has continued to gain market share and generated growth, despite softening in the beauty category, he added.
"As such, we expect the company to continue to deliver healthy topline growth fueled by a disciplined holy grail innovation strategy and disruptive marketing techniques that resonate with core Gen Z consumers," the analyst wrote.
The Coty Thesis
Kanada initiated coverage of Coty Inc (NYSE: COTY) with a Neutral rating and a price target of $9.
Coty has stabilized its Consumer Beauty business, while its Prestige Fragrance business remains strong, the analyst said. While the company is a "strong transformation story," the softening in the beauty category lowers the visibility into its near-term performance, he added.
"Management is optimistic trends will begin to improve in 2H25, but we take a more cautious view as we expect competition to intensify as volume scarcity grows and given softening trends for COTY in scanner data as well as HundredX consumer sentiment data," the analyst wrote. There is opportunity in the longer term, as Coty "continues to simplify its operating structure, speed up its innovation cycle and strengthen its social media marketing capabilities," he further stated.
ELF, COTY Price Actions: At the time of publication on Friday, shares of elf Beauty had risen by 2% to $134.14 and Coty's stock had declined by 1.87% to $7.33.