Estee Lauder Companies Inc (NYSE:EL) on Wednesday received a big downgrade from analysts at UBS, which cited growth concerns and potential rising costs for the bearish move.
The firm cut its rating on EL from “Buy” to “Neutral” and lowered its price target to $84 from $93. That new target suggests a smaller 8.6% upside to the stock’s Tuesday closing price of $77.32.
UBS noted it’s beginning to have doubts about Estee Lauder’s long-term growth outlook and target multiple. The firm believes EL is more fairly valued at around 21-22x EPS vs. a prior 23-24x multiple outlook. UBS said it will be difficult for the company to maintain its 6% to 8% long-term growth run rate without significant added costs.
The firm’s estimates for EL’s 2017 earnings remain below the company’s own guidance, as well as below the Wall Street consensus as a result. Recent data points gleaned from Macy’s weakening same-store sales, for example, haven’t managed to inspire a more bullish outlook. UBS is also wary of the stock’s increased dependence on top-line growth, given margin shortfalls.
As a result of foreign currency pressures, underlying top-line risks, and likely near-term dilution from its Too Faced brand, UBS is keeping their estimates for EL below the Wall Street average through fiscal 2019.
Estee Lauder Companies Inc shares were trading at $77.12 per share on Wednesday morning, down $0.23 (-0.30%). Year-to-date, EL has gained 0.82%, versus a 1.53% rise in the benchmark S&P 500 index during the same period.