Estée Lauder (NYSE:EL): A Bull-Case Theory

In this article, we’ll be summarizing a bullish thesis posted on VIC covering Estée Lauder (NYSE:EL),  in October, when the stock was trading at $92. Currently, EL stock is trading at $72.40, which shows that the stock has dropped in value since the publication of this thesis. Nonetheless, EL stock is now trading at a trailing-twelve-month TTM PE ratio (non-GAAP) of 27.42, and the stock is trading at 1.74 times, forward sales estimates.

The VIC thesis on Estée Lauder (EL) offers a bullish narrative for a turnaround backed by operational improvements, strategy refocusing, and leadership changes. The business wants to consolidate its brand portfolio, cut expenses, and make investments in high-return prospects such as luxury fragrances and emerging markets like Latin America and India.

Estée Lauder is positioned to steady its activities with cost-cutting programs aiming at $800 million to $1 billion in savings and completion of capital projects in Asia. Further opportunities for expansion come from fixing inventory problems in travel retail and using new distribution channels like Amazon.

Prominent retirements of the CEO and CFO as well as fresh hires with experience at Ulta Beauty and Amazon point to a change toward more active management. This rejuvenated leadership is expected to refocus the company on sustainable profitability, avoiding acquisitions until the core business strengthens and reallocating money toward shareholder returns by buybacks and dividends. With management aiming for a 20% EBIT margin, Estée Lauder’s traditionally strong gross margins of 70% and robust legacy brands—Clinique, La Mer, and MAC—showcase the company’s potential for profitability.

Estée Lauder’s long-standing legacy and family ownership as well as the favorable economics of the beauty business offer a good basis for recovery. Supported by improved strategy and execution, reaching $7 per share in earnings by 2026 could propel its price between $140 and $175. The thesis depends on management’s performance on these projects, thereby offering investors ready to gamble on a good turnaround and an appealing risk-reward situation.

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Disclosure: None. This article was originally published at Insider Monkey.