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In addition to being a crackerjack equities analyst, I'm also something of a makeup aficionado. Credit my upbringing for this; my mother grew up in the '50s, and even today, she is loathe to so much as check the mail without a full application of liquid eyeliner. So, as you might imagine, I'm quite familiar with Estee Lauder Companies (NYSE: EL).
While it's technically a consumer-goods company, you might have a perception of Estee Lauder as a peddler of upscale cosmetics -- in today's economy, high-priced eyeshadow is unarguably a discretionary expense worth cutting. However, EL's reach is probably broader than you realize. For example, the company owns MAC, a line that caters specifically to professional makeup artists and amateur makeup fetishists. No matter the economic climates, these two constituencies can be counted on to keep shelling out for blush.
Estee Lauder also boasts the lower-priced Clinique line, a staple of many women's' skin-care and cosmetics routines for decades. On the high end, the company sells fragrances by the likes of Tom Ford and Michael Kors -- two names favored by the kind of consumers who do still have disposable income to spare. Plus, its Bumble and bumble brand name is a favorite of professional hair stylists.
Among cosmetics companies, then, the scope of Estee Lauder's offerings is impressive. That fundamental strength was on display in the firm's fiscal first-quarter earnings report, which saw EL collect double-digit percentage gains in both profit and revenue. Estee Lauder did attract some skepticism when it offered a second-quarter outlook that fell short of analysts' expectations, but the cautious guidance has already been priced into the shares.
Currently, EL is sitting near a multiyear low, and it's hovering close to previous chart support in the mid-20s. Analysts have been quick to punish the stock for its slipping price action; First Call reports that 14 downward revisions have been made to the company's annual earnings-per-share estimates, compared to zero upward revisions.
Judging by this level of negativity, you might never suspect that Estee Lauder has exceeded Wall Street's profit expectations in three of the past four quarters -- and the lone miss was off the mark by just fractions of a cent. If the cosmetics king continues to hold up better than expected, these pessimistic brokers may be encouraged to upgrade the stock. With Zacks reporting six Holds and one Strong Sell, there's plenty of room for bullish notes to sweep the shares higher.
While the fundamental picture for Estee Lauder might not be the most attractive we've ever seen, the family-run company looks sufficiently diverse to weather the broad-market storm with aplomb. Investors will want to keep an eye on this high-end beauty firm while it's still trading at drugstore prices -- at the end of November, EL's price/earnings ratio of 11.3 represents a steep discount to its five-year average p/e of 23.4.
Elizabeth Harrow is an analyst and financial writer in the research department at Schaeffer's Investment Research. She is featured in the video series Schaeffer's Daily Q&A on SchaeffersResearch.com.
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