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Estée Lauder: Earnings Already Surpassed Pre-COVID Level, More To Come

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Librarian Capital


  • Despite COVID-19, EL achieved a record EBIT in Q2 FY21 (Q4 CY20), and sales were flat organically compared with an unaffected prior year.
  • The strength was primarily driven by China; the U.S., Europe, and Travel Retail were still weak, meaning there is more to come in a full recovery.
  • Organic sales growth is guided to 10-11% in Q3, and management are confident of returning to their long-term growth targets after COVID.
  • EL shares are trading on 42.9x pre-COVID CY19 EPS, but last quarter's EPS was already 12% higher than that in CY19.
  • With shares at $285.86, we expect an exit price of $349 and a total return of 26% (7.2% annualized) in 3.5 years. Buy.


We review our Estée Lauder (NYSE:EL) investment case with Q2 FY21 (October-December) results released on February 5 and other recent developments.

We initiated a Buy rating on EL shares in April 2020 (PRO subscription required), and they have gained 76% (including dividends), more than twice the gain in the S&P 500:

Librarian Capital EL Rating History vs. Share Price

Source: Seeking Alpha (28-Feb-21).

Buy Case Recap

We initiated Buy ratings on both EL and L'Oréal (OTCPK:LRLCF) shares in March/April, after the U.S. and Europe entered COVID-related lockdowns. Our key assumptions on EL were as follows:

  • The Beauty sector has a long period of strong structural growth ahead, as an aspirational category for consumers, helped by growing demand from APAC (especially China) and from premiumization (especially in Skin Care).
  • Both L'Oréal and EL have strong global franchises built on leading brands, high-quality products, scale, innovation and marketing capabilities.
  • Both L'Oréal and EL can grow sales faster than the market, and grow their earnings faster than sales, thanks to natural operational leverage.
  • EL is smaller, more focused on the Prestige segment, has a higher exposure to Skin Care, and tends to grow sales faster (in double-digits).

We knew that EL was more vulnerable to COVID-19 disruption, as Travel Retail was 23% of its sales in FY19, and department stores were 35% (including 13% in North America):

EL Net Sales & EBIT Breakdown (FY19) (Pre-COVID)

Source: EL company filings.

While department stores were challenged even before COVID, we believed there would be at least some recovery and, even if one of EL's channels were to be impaired permanently, its competitive advantages would enable it to regain sales in other channels over time.

We reiterated our Buy rating on EL after each set of

This article was written by

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We are no longer publishing new content on Seeking Alpha. To get in touch, use the website or Twitter account on our profile, as comments and messages on this site are no longer checked regularly. Articles published under our name on Seeking Alpha were personal opinions, based on information believed to be correct at the time of writing, but not updated. Librarian Capital is an independent third party that published articles on Seeking Alpha on an ad hoc basis, and we have had no contractual relationship with Seeking Alpha beyond the terms and conditions under which those articles were published.

Analyst’s Disclosure: I am/we are long EL, LRLCF. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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