Benzinga | Mar 24, 2021 10:42AM EDT

Wells Fargo Bullish On Este Lauder After Analyzing Data From China

Beauty company Est?e Lauder Companies Inc (NYSE:EL) offers investors a compelling and underappreciated growth story, according to Wells Fargo.

The Est?e Lauder Analyst: Chris Carey upgraded Est?e Lauder's stock rating from Equal Weight to Overweight with a price target lifted from $290 to $340.

The Est?e Lauder Thesis: Two key data points out of China make the case for Est?e Lauder to beat estimates in its third-quarter results (scheduled May 3), Carey wrote in the upgrade note.

First, China is mostly an importer of cosmetic goods, so import data would be an ideal proxy to gauge demand levels.

Government data released on Tuesday shows cosmetics imports accelerated to 62.8% growth in January and February, marking the highest rate of growth since the start of 2020, the analyst wrote. This makes the case for a "material sequential acceleration" in Asia Pacific sales growth in the fiscal third quarter.

Related Link: 2 Analysts Break Down Ulta Beauty's Q4 Earnings, CEO Transition

The second piece of data is China duty-free imports as this is a proxy for Est?e Lauder's China Domestic Travel Retail business, the analyst wrote.

On Tuesday, government data showed China's duty-free imports accelerated from 46.8% in the last three months of 2020 to 88.8% in January and February 2021.

The China domestic travel retail business for Est?e Lauder is important as it can entirely offset major declines in the company's travel retail business in the rest of the world.

The research firm is estimating the company to earn $1.42 per share in the fiscal third quarter versus the consensus estimate of $1.28 and management's own outlook of $1.10 to $1.20 per share.

EL Price Action: Shares of Est?e Lauder Companies were trading higher by nearly 3% Wednesday morning at $289.

(Photo: Est?e Lauder)