Estée Lauder: COVID In China Drove Weak Q4 FY22 Results & FY23 Outlook

(Preview) Company Update (EL US) (Buy)

Summary

• EL shares have fallen 5.8% since Q4 FY22 results last Thursday, and remain 20% down from a year ago - a bargain in our view.

• Organic sales growth was just 8% in Q4 FY22 and expected to be just 7-9% in FY23, both disappointing relative to our investment case.

• However, COVID restrictions in China as well as other one-offs are to blame, and these problems are temporary and local in nature.

• EL grew strongly in H1 FY22, and in Q4 where COVID and Russia were not a factor. We believe its structural growth drivers are intact.

• With shares at $265.43, we expect an exit price of $428 and a total return of 61% (13.4% annualized) by June 2026. Buy.

Introduction

The Estée Lauder Companies Inc. released Q4 FY22 (April-June 2022) results last Thursday (August 18). EL’s share price has fallen 5.8% since.

We initiated our Buy rating on Estée Lauder in early April 2020 (PRO subscription required). Since then EL shares have gained 65% in just under 2.5 years, though they are currently down 20% from a yea…