The Estée Lauder Companies Inc. Stock Analysis
Estée Lauder Companies Inc. shares. Company is one of the world’s leading manufacturers of high-quality skincare, makeup, fragrance, and hair care products, as well as marketing experts and sellers. The company was founded in 1946 by Estée and Joseph Lauder. Its products are sold in approximately 150 countries and territories.
The company manages well-known brands such as Estée Lauder, Clinique, Origins, M·A·C, Bobbi Brown Cosmetics, La Mer, Aveda, Jo Malone London, TOM FORD, Too Faced, Dr.Jart+, and The Ordinary. Additionally, it holds global licenses for AERIN and BALMAIN brands for perfumes and cosmetics. Each brand is uniquely positioned in the cosmetics and beauty products market.
Prestigious goods are sold through distribution channels, on official and authorized sellers’ websites, as well as on third-party online trading galleries. They are also available in airport shops, customs-free trade zones, as well as on official and authorized brick-and-mortar stores. Additionally, the products are sold in regular retail stores, including shopping centers, high-end perfume shops, pharmacies, as well as prestigious beauty salons and spa centers.
Since its founding, Estée Lauder Companies Inc. has been controlled by members of the Lauder family, including directors, executives, and/or employees, directly or indirectly holding approximately 84% of the voting rights of common stock as of August 11, 2023.
Income distribution by sectors:
The main competitors are L’Oreal S.A.; Unilever; Procter & Gamble; Shiseido Company, Ltd.; LVMH Moët Hennessy Louis Vuitton; Beiersdorf; Chanel S.A.; Natura & Co.; Coty Inc.; and Bath & Body Works, Inc.
Finance
The average annual income growth over a 10-year period, ending on June 30, 2023, was 4.56%. This represents a good growth rate for a large company, despite a significant revenue contraction of over 10% in the last year. Cash flows have been declining for the second consecutive year, but they still remained positive.
Gross margin are indeed high. This indicates that the company holds strong positions in a competitive environment. However, we observe a trend where rising raw material prices are not compensated by sales. Although the company has announced price increases, revenues still decreased.
The Net margin is too low for a Intelligent investor. When the average was only about 10%, in the last year, it was only 6.32%. The average annual EPS growth over a 10-year period was just 0.79%, and over 5 years, it decreased by an average of -1.11% annually. We notice a significant increase in the portion of Administrative, General, and Marketing costs in the Gross profit. This portion reached as high as 84%.
In the last financial year, Retained profits saw a marginal increase. However, the CAG) over the past 10 years stands at 10.06%, indicating steady growth. While this is decent, there is room for improvement. Whether this improvement will happen remains to be seen, as the profitability of Retained profits was only 0.85% in the previous year. Thus, currently, there are no exceptional results to be seen. Nonetheless, there is potential for growth.
Simply put, we are postponing this idea until mid-next year when we will see new revenue indicators. However, if the company owners wanted to sell the business today and invest the proceeds in 10-year US bonds, earning the same return as in 2023, they should sell the stocks at a steep discount, at $59 each.
Investment scoreboard:
Income forecast:
| Forecast | 2024 | 2025 |
|---|---|---|
| EPS | 5.44 | 5.98 |
| Net profit | 1 964 000 000 | 2 160 000 000 |
| Revenue | 18 880 000 000 | 20 770 000 000 |
The Estée Lauder Companies Shares
Will the company’s stock indicators be more optimistic? Anything is possible. The company has Dividend and Share Buyback programs, which is already a positive evaluation. The average annual growth of dividends over a 10-year period is nearly 8%. The dividend yield at the time of writing was 1.89%. And that already looks good.
The dynamics of stock prices at the time of writing are decreasing. However, the Price-to-Free Cash Flow (P/FCF) ratio indicates that investors were willing to pay $97 in the market for one dollar of FCF, which is the highest ratio in the past 10 years. This could be viewed very positively, but let’s not forget that the dynamics of FCF streams are also negative.
The stock price perspective calculated using the GRAPES method reaches 156 USD. It’s a rather moderate growth, and it’s questionable whether such a perspective is interesting to us. However, the maximum return on investment calculated using our method can reach up to 15% on average annually. The dispersion of results is significant due to the controversial nature of Fundamental analysis. That’s why we conducted the analysis; the idea is genuinely intriguing.
The PEG ratio of the stock prices is even more interesting. At the time of writing, it was nearly 33. This is a very high indicator. However, the Equity Risk Premium of the stock was -0.81%. This indicator is very poor, indicating that inflation will not spare this stock in the near future. The Standard Deviation of the price was 25.52%. This is a fairly normal indicator. The Beta ratio was 1.06.
Price Chart
Conclusions
During the writing, we did not have any company stocks. Are we planning to buy? Not in the near future. We do not have any plans at the moment. We will continue to monitor this company and wait for an improvement in the results. One of our favorite ways to monitor is speculating on company stocks – a good way to watch the market. As of now, we see that the stock price is testing the strength of the support. It’s possible that it might find its bottom here. Therefore, we are optimistic and see the potential for high returns. If you already own stocks of the company, don’t rush to sell.