This post was originally published on this site
Berenberg analysts downgraded shares of Estee Lauder (NYSE:EL) to Hold from Buy with a price target of $220 per share, down from $323, citing limited visibility and pace of a recovery.
The downgrade call comes after the company reported its FQ1 results last week, noting that organic sales fell 5% year-over-year. Estee Lauder blamed the weak sales performance on the ongoing COVID restrictions in China.
The lowered rating and price target at Berenberg reflects “the headwinds the business is currently facing, in particular, retailer destocking in the US and Hainan, the ongoing headwinds from COVID-19 restrictions in China and increased investments on distribution (supporting increased consumer reach and new market entry) as well as a higher tax rate of 25%,” the analysts told clients in a note.
Moreover, they are cautious on the timing of an eventual recovery, which may not arrive before 2025.
“Ultimately, the shape of the recovery will depend on consumer mobility in China, such as the easing of the zero-COVID-19 policy, and to a lesser extent the consumer backdrop in North America. Our 12-month price target falls to USD220 (from USD323) reflecting our earnings revisions and higher WACC of 7.9% (previously 7.4%) on the back of rising bond yields,” they added.
Net-net, the analysts conclude that Estee Lauder’s business is simply too “susceptible to disruption and shifts in consumer shopping habits.” This, alongside other challenges that the business is facing, could yield more volatility going forward.
