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EL – Market expectations call for record-high Uniform ROA, but management may have concerns about their investments, sales growth, and costs

July 15, 2021

  • The Estée Lauder Companies Inc. (EL:USA) currently trades at a historical high relative to UAFRS-based (Uniform) earnings, with a 42.2x Uniform P/E, implying bullish expectations for the firm. However, management may have concerns about their advertising, innovation, and online investments, Mainland China, travel, and pre-tail sales growth, and cost management.
  • Specifically, management may lack confidence in their ability to sustain improving trends in makeup through future-rich franchises, as well as secure competitive investments in advertising, innovation, and online capabilities, particularly with Virtual Try-On. Furthermore, they may have concerns about the pace of recovery of core products, the potential of La Mer’s virtual consultations for local consumers, and their economic and travel recovery product mix plan. Moreover, management may lack confidence in their ability to continue exceeding sales guidance, sustain operating margin growth, and maintain overall sales growth, particularly in the pre-tail segment. Finally, they may lack confidence in their ability to manage costs.