Estée Lauder: Temporary China Disruption Since Q3 FY22 Presents Bargain
(Preview) Company Update (EL US) (Buy)
Summary
EL shares fell 5.8% on Tuesday after disappointing results. Organic sales growth was 9% last quarter and expected to be 5-7% for FY22.
The reason was China, where COVID lockdowns have reduced in-store sales and disrupted EL's national distribution centers in Shanghai.
EL sales growth fell below L'Oréal's, but we attribute this mostly to EL's Shanghai facilities and its higher exposure to Travel Retail.
The weakness in China is supply-driven, and demand for Beauty products remains robust, especially for luxury brands.
With shares at $245.52, we expect an exit price of $435 and a total return of 82% (21.1% annualized) by June 2025. Buy.
Introduction
The Estée Lauder Companies Inc. released Q3 FY22 (January-March 2022) results yesterday (May 3). EL shares ended the day down 5.8%.
We initiated our Buy rating on Estée Lauder in early April 2020 (PRO subscription required), and reiterated it multiple times. Since our initiation, EL shares have gained 53% (including dividends), but the share…