Ulta Beauty, Inc. (ULTA) is a beauty retailer in the United States that sells cosmetics, fragrances, skincare and haircare, and body products. The company offers private label products, such as its Beauty Collection branded cosmetics, skincare, and bath products. And it continues to strengthen its omnichannel business through retail and digital sales channels.

ULTA’s sales trends are expected to improve in the fourth quarter based on an anticipated boom in demand and an associated increase in consumer spending on healthcare and beauty products this holiday season. The company is on track to boost its sales on the back of its plan to open approximately 30 new stores and complete approximately five relocation projects next year.

ULTA’s solid business model and increasing brand recognition have driven a 10.4% gain year-to-date. This impressive performance, combined with other factors, has helped ULTA earn a “Buy” rating in our proprietary rating system.

Here’s how our proprietary POWR Ratings system evaluates ULTA:

Trade Grade: A

ULTA is currently trading above its 50-day and 200-day moving averages of $243.72 and $221.72, respectively, indicating that the stock is in an uptrend. Also, the stock has gained 16.2%, over the past three months, reflecting a solid short-term bullishness.

ULTA’s revenue increased 26.4% sequentially to $1.60 billion in the third quarter ended October 2020. The increase in revenue was primarily attributable to a significant growth in the company’s salon services. Its gross profit has risen 65.8% sequentially to $545.52 million, while EPS grew 850% to $1.33 over this period.

On November 10^th, ULTA announced a strategic partnership with Target Corporation (TGT) to offer ULTA’s products in select TGT locations nationwide beginning 2021. This partnership will help ULTA to expand and grow through a new, industry-leading omnichannel retail experience.

Buy & Hold Grade: B

In terms of proximity to its 52-week high, which is a key factor that our Buy & Hold Grade considers, ULTA is well positioned. The stock is currently trading just 8.2% below its 52-week high of $304.65, which it hit on February 12^th.

The company’s net revenue grew at a CAGR of 4.2% over the past three years. This can be attributed to the planned expansion of its stores and its impressive, personalized salon services.

Peer Grade: B

ULTA is currently ranked #8 out of 36 stocks in the Specialty Retailers industry. Other popular stocks in this industry are Office Depot, Inc. (ODP), Murphy USA, Inc. (MUSA) and Conn’s, Inc. (CONN)

While CONN beat ULTA by gaining 12.1% year-to-date, ODP and MUSA returned 2.8% and 7.4%, respectively, over this period.

Industry Rank: C

The Specialty Retailers industry is ranked #66 out of the 123 StockNews.com industries. The companies in this industry offer beauty products and services, video games, books, health supplements, and more.

As COVID-19’s spread has increased, so have market-specific government restrictions, which resulted in limitations on in-store capacity and in some cases caused store closures. However, as global economies have been gradually recovering, ULTA’s beauty retail stores have begun a phased reopening. But as stay-at-home conditions are likely to continue, the demand for ULTA’s products is expected to be seasonal.

Overall POWR Rating: B (Buy)

ULTA is rated “Buy” due to its impressive financials, short-and-long-term bullishness, and solid price momentum, as determined by the four components of our overall POWR Rating.

Bottom Line

ULTA is well positioned to soar in the upcoming months despite gaining 10.4% year-to-date. Due to the holiday season, the demand for premier beauty and skincare items is expected to surge in the near term. With beauty retailers offering deals, aggressive discounts on a variety of product options, sales are likely to climb.

Analyst sentiment, which gives a good sense of a stock’s future price movement, is positive for ULTA. It has an average broker rating of 1.38, indicating favorable analyst sentiment. Of24 Wall Street analysts that rated the stock, 18 rated it a “Strong Buy.” The consensus EPS estimate of $10.57 for the next year indicates a 207.3% improvement year-over-year. Moreover, ULTA has an impressive earnings surprise history, with the company beating consensus EPS estimates in three out of the trailing four quarters. The consensus revenue estimate of $7.32 billion for the next year indicates a 21.6% increase from the same period last year.

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ULTA shares were trading at $273.26 per share on Monday afternoon, down $6.28 (-2.25%). Year-to-date, ULTA has gained 7.95%, versus a 16.32% rise in the benchmark S&P 500 index during the same period.

About the Author: Imon Ghosh

Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization. More...

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