Estee Lauder Co. (EL): Reinstate at Buy as underlying improvements drive top- and bottom-line growth momentum ahead

Research evidence excerpt

Estee Lauder Co. (EL): Reinstate at Buy as underlying improvements drive top- and bottom-line growth momentum ahead

Goldman Sachs Estee Lauder Co. (EL)

business via its Beauty Reimagined vision. Another question was whether the discussions

signaled a concern on EL’s ability to sustain its growth momentum on a standalone basis.

While the merger discussions have ended, we believe questions around EL’s ability to

deliver on its l.t. targets on a standalone basis will remain an overhang on the stock until

investors get incremental proof points supporting sustained momentum ahead. As we

highlight subsequently, we believe EL has made progress towards its recovery with a

return to share gains, top-line growth, and operating margin improvement. Coupled with

growth-advantaged prestige beauty exposure, we believe EL remains well positioned to

progress towards sustainable top-line momentum and mid-teens operating margins

ahead.

Separately, as the company returns to more normalized operations following its PRGP

initiatives, mgmt remains open to more transformational M&A as long as the deal makes

sense from a growth/profitability standpoint and can be executed at the right price. We

believe EL has ample balance sheet flexibility to pursue such transactions. In addition,

the company has also hired advisors to review its brand portfolio to understand if there

are certain brands that no longer fit with consumer needs, which may lead to potential

divestitures over time.

Growth-advantaged prestige beauty category exposure and faster on-trend innovation to support EL’s

sales growth acceleration ahead

We believe beauty remains one of few growth-advantaged categories within our broader

HPC coverage universe. As we highlighted in our HPC Global Growth Guide, we expect