September 25, 2017

EL – Market expectations are for record-high Uniform ROA, but management’s concerns about customer acquisition, growth in China, and their savings initiative imply this may be unwarranted


  • The Estée Lauder Companies Inc. (EL:USA) currently trades near historical highs relative to UAFRS-based (Uniform) Earnings, with a 27.0x Uniform P/E, implying fairly bullish expectations for the firm. However, given management’s concerns about growth and recent initiatives, this may be unwarranted
  • Specifically, management may lack confidence in their ability to capture new customers, and may be concerned about the sustainability of growth in China. Moreover, they may lack confidence in their ability to deliver $200mn-$300mn in annual net savings with their Leading Beauty Forward initiative. Should the firm fail to drive Uniform ROA to record-highs, as management sentiment suggests, multiple compression and equity downside would be warranted

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