Morgan Stanley analyst Dara Mohsenian reiterated an Overweight rating on the shares of Estee Lauder Companies Inc
EL's stock dropped a modest 3% on Friday with weaker than expected FY24 EPS guidance of $3.50-3.75 that was well below bearish street expectations moving towards the $4 range and the $4.85 consensus, said the analyst.
The analyst commented that the downside was generally expected with travel retail (TR) weakness, but the magnitude was worse than expected.
Visibility remains very low, but after a series of worse than expected recent issues, the analyst thinks EL is focused on breaking out of a cycle of very pronounced short-term negative EPS revisions, and returning to its longer-term track record of beating estimates.
While Q1 will be impacted by continued inventory cuts in Hainan, the analyst is encouraged by implied 13% OSG growth in Q2-Q4, which points to a robust recovery as Hainan issues dissipate.
The analyst also noted that Q4 EPS slightly ahead of prior guidance helps increase conviction that EL is now trying to guide conservatively, albeit with a fluid situation and low visibility.
The analyst lowered FY24 EPS by a significant -24%, with further clearing of inventory in Asia travel retail, and FY25/26 by a lesser -14%/-9%.
The analyst cut the price target based on 26 times FY26 EPS, versus EL's historical 31 times NTM P/E level and a 29x average multiple at high growth peers, and below the analyst's prior 31x multiple.
Price Action: EL shares are trading lower by 3.73% at $150.85 on the last check Monday.
