IBD Leaderboard member ELF stock is trading in a buy zone and eying yet another record high with cruelty-free cosmetics brand ELF Beauty set to report Q3 results late this afternoon. Rival Estee Lauder (EL) rocketed to five-month highs Monday after announcing a new restructuring plan with its second-quarter earnings beat.
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ELF Beauty (ELF) shares nearly doubled from late-October lows after reporting a 128% Q2 earnings increase to trounce estimates in November.
Baird on Jan. 29 initiated coverage of ELF Beauty. It noted the company offers “incredible value, compelling product innovation and marketing muscle,” which have propelled ELF to a leader in the mass cosmetics market with “plenty of runway ahead.” However, the near-term expectations may be toned down due to forecasts for an earnings valuation 52 times current levels, which leaves “little room for error.” Baird has a neutral rating on ELF stock and a $185 price target.
Piper Sandler still sees a healthy earnings trajectory for ELF Beauty. A research note last Wednesday noted near-term sales upside from recent publicity initiatives. The firm also wrote that shares are sitting at elevated levels, and investors are focusing on ELF’s marketing strategy to see how sustainable current sales trends are, as well as how market share can expand. Piper Sandler lifted its price target on ELF stock to $185 from $177 and maintained an overweight rating on shares.
ELF Beauty Earnings
FactSet forecasts Q3 earnings increase 19% to 57 cents per share. That would mark a third consecutive period of slowing growth after four quarters of triple-digit gains. Analysts expect a 63% spike in revenue to a record $238.9 million. Sales growth averaged about 77% sales growth the last three quarters.
ELF stock rose 1.4% early Tuesday, climbing higher in a buy zone above a  three-weeks-tight entry at 164.71. Shares rebounded to reach a record high intraday Monday after sliding more than 4% in early trade.
Last week, ELF Beauty hit an all-time high after breaking out Friday.
Shares of the cosmetics brand has run up 19% so far this year following a cup-base breakout in early December.
Estee Lauder
Estee Lauder on Monday reported a 43% adjusted earnings drop to 88 cents per share, after four quarters of accelerating declines and beating FactSet estimates of 54 cents. Net sales fell 7% to $4.28 billion, but came in above forecasts of $4.19 billion.
Estee Lauder expects to return to “strong” organic sales growth in the second half of fiscal 2024, which will expand on its profitability from the first half of the year.
Restructuring Plan
ELF Beauty also announced a new restructuring program to begin in Q3 as part of its Profit Recovery Plan in 2025 and 2026. The plan will focus on rebuilding more sustainable profitability and support sales growth acceleration while lowering its cost base and reducing overhead expenses, as well as investing in key consumer-facing activities. Estee Lauder expects the initiative to improve gross margins and its expense base.
Estee Lauder plans to reduce its workforce by 3% to 5% as part of the restructuring plan and will retrain and redeploy some employees. The company expects to restructuring charges of $500 million to $700 million, but will yield annual gross benefits of $350 million to $500 million. Estee Lauder now sees the Profit Recovery Plan driving $1.1 billion to $1.4 billion in incremental operating profit, up from the prior forecast of $800 million to $1 billion.
Estee Lauder slid 1.8% early Tuesday to give up some of its Monday gains. EL Stock spiked 12% Monday to its highest level since September and led the S&P 500 during daily trade.
Estee Lauder on Monday pushed strongly above its 50-day moving average and closed in on its 200-day line.
You can follow Harrison Miller for more stock news and updates on X/Twitter @IBD_Harrison
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