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…