Shares of Estée Lauder on Thursday climbed after Bank of America upgraded its recommendation on the stock to buy from neutral as the beauty giant implements a profit-recovery plan.
The owner of cosmetics brands such as Clinique, La Mer and Bobbi Brown should benefit from a reacceleration of sales and profit growth as Estee Lauder exits the fiscal year ending in June 30 with better visibility into end-market demand, Bank of America analysts say in a research note.
The New York company lost focus on product upgrades and innovation in recent years. However, its current innovation push to respond faster to trends and repair brands portfolios should come with improvements across the prestige category.
Bank of America expects to see innovation specifically aimed at reversing recent market-share softness in makeup from MAC and Tom Ford.
Estée Lauder’s success is dependent on achieving more consistent growth across developed markets and emerging markets, excluding China, given the slowdown in the travel retail island of Hainan and weaker middle class spending in beauty.
Still, the bank expects to see market-share growth and operating leverage as Estée Lauder reduces its reliance on China and travel retail down from a peak mix of 36% and 26% in fiscal 2021.
In the U.S., Estée Lauder is better aligning its distribution strategy as it reduces its dependence on department stores, the analysts said. The company just launched its first beauty store on Amazon.com for Clinique, with more brands to follow.
Bank of America upgraded its fiscal 2026 earnings estimates to $5.85 a share from $5.50 a share and raised its target price to $170 a share from $160 a share previously.