Estee Lauder (EL)

A disaster. Used to be great. The CEO is not doing a good job.

EL’s share price is under tremendous pressure recently due to the weak guidance. Still, at 52X earnings the stock is still on the expensive side, even with a 28% YTD decline.  Based on consensus estimates, sales are expected to decline by around -10% this year and start to recover back to 2022’s level in 2024. We think EL still possesses a strong portfolio of worldwide recognized brands for skincare, makeup, fragrance, etc. and these brands have been around for decades and demonstrated consumer loyalty and significant pricing power over the years. Most consumer discretionary names experienced a short-term headwind due to the concern of economic recession. In the last quarter EPS missed estimates. For 2023, EPS is expected to decline by close to 50%. But, nearly 50% growth is expected in a 2024 recovery. Thus, this is a tough call. Momentum is negative, and there are still risks. Valuation is high, but we think that is because investors believe in the rebound possibility. We have recession risk, but the balance sheet is OK (some debt but not an onerous amount). Sentinment is very negative, so any positive news at all should be good for the stock. We would thus be willing to hold to see how the next two quarters fare. 
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Upgraded today, but down 25% YTD. It has missed the last three quarters and most recently guided down due to supply chain issues and China reopening slowly and travel retail (mostly from Asia) being down 43%. But ex-travel retail rose 10% last quarter, so eventually these will work. Eventually, China will right itself and sentiment has fallen enough.

Is linked to China whose reopening has been much slower than expected, so EL isn't doing well lately. 

It’s a safe bet to assume that the return of the Chinese traveller will boost EL’s bottom line. Rather, it’s a question of how much and how fast? The company itself has beaten its last four quarters. The market is giving shares the benefit of the doubt as EL trades just under 58x PE, above its five-year average of 55.31x and higher than in 2022, but a third during the December 2020 peak. Read China reopens for our full analysis.

Expects a good quarter next week.

Will benefit from China's reopening and has long performed well there. 

Today marks the first day that American business executives can fly to China after three years. Those American companies which already have a strong presence in China can get a major boost from this reopening. The company was thriving before the reopening, so imagine what happens now.