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Shares of Estée Lauder (NYSE:EL) were upgraded to Buy from Neutral at Goldman Sachs on Wednesday based on the recent pullback in the stock.
A Goldman analyst, who has a $303 price target on the stock, told investors in a research note that while uncertainty around the duration of China’s zero-COVID policy and the associated impact on Estée Lauder’s business remains high, they feel it is now adequately reflected in the stock.
“This uncertainty is around a dynamic that we believe will prove transitory and history has taught us that stock price weakness related to transitory events are typically buying opportunities, especially when they overshadow an otherwise improving outlook,” wrote the analyst.
The analyst also feels the company is “arguably” emerging from the COVID pandemic as a more robust business than when it entered the pandemic.
“The consumer had been migrating away from channels of strength for EL (e.g., department stores) to channels where its share was relatively lower (e.g., specialty-multi retailers and e-com). COVID meaningfully accelerated that shift creating a period of concentrated market share pain for the company (2020 and 2021) while at the same time proving cathartic as the company now has channel exposure in the US and Europe that we believe is much more in balance with the market,” added the analyst.
Goldman Sachs now sees sustained organic sales growth for the company in developed markets as opposed to the China-dependent growth model of pre-COVID.
