Benzinga | Feb 8, 2021 05:39PM EST

Here's Why Este Lauder Is Impressing Analysts

Est?e Lauder Companies Inc (NYSE:EL) reported its second-quarter 2021 earnings Feb. 5 and its sales revenue rose 5% year over year, beating estimates despite less foot traffic and some closure of stores throughout the COVID-19 pandemic.

"Our multiple engines of growth strategy continued to prove its value, enabling us to pivot with agility in this challenging moment," Fabrizio Freda, president and CEO, said on the conference call.

Freda attributed large segments of Est?e Lauder's growth to both the growing demand for its products in the Asia-Pacific and its pivot to capturing customers online through its Virtual Try-On technology and customer/beauty advisor video chat services.

Est?e Lauder reported sales revenue of $4.85 billion compared to the Street estimate of $4.49 billion and adjusted EPS of $2.61 compared to the estimate of $1.69.

The Est?e Lauder Analysts: Davidson analyst Linda Bolton Weiser reiterated a Buy rating and increased a price target from $259 to $320.

Morgan Stanley analyst Dara Mohsenian reiterated an Overweight rating and increased a price target from $285 to $312.

Raymond James analyst Joseph Altobello maintained a Market Perform rating.

Est?e Lauder's High-Growth Strategy: Est?e Lauder's continued e-commerce strength, Chinese consumer sales growth and growth in travel retail is "a very impressive accomplishment in the middle of a pandemic," Mohsenian said in a note.

Speaking about these three areas of growth, Mohsenian added, "We continue to believe in our long-standing call that Est?e is transforming to a higher growth and higher margin company as mix shifts to these value drivers, which is occurring at an even greater pace than expected based on FQ2 results."

Altobello wrote, "In addition to the better than expected sales (particularly in Asia-Pacific), gross margin was modestly better than expected (77.7% vs. RJe 76.0%), reflecting a mix shift toward skin care and online."

However, Altobello also noted Est?e Lauder will feel margin pressure in coming quarters as employees return to work and advertising and promotions ramp up, but said the e-commerce platform will continue to provide cost savings.

Weiser pointed to Est?e Lauder's growth in the travel retail sector of its sales, especially in China. Travel retail revenue was up single digits for the fourth quarter, despite the COVID-19 pandemic, and Weiser said, "Travel retail benefited from robust growth in Hainan and strong conversion rates."

Mohsenian also noted consumer engagement "improved with its loyalty program growing strong double digits, driven by triple-digit growth of international loyalty program members."

In an interview with Jim Cramer this past Friday, Freda also highlighted the success of the loyalty program and said, "marketing will get consumers to try your product, but only quality will get them to purchase it again."

EL Price Action: The stock closed Monday's session up 2.8% at $280.54.

(Photo: Est?e Lauder)