HSBC has adjusted its rating on Estee Lauder (NYSE:EL), moving the stock from Buy to Hold and slightly increasing its price target to $106.00 from $105.00 in the wake of the company’s second-quarter results. The change comes even as Estee Lauder delivered an earnings beat and lifted EPS guidance for the period.
According to InvestingPro data cited by analysts, the stock has fallen almost 15% over the past week, a drop HSBC attributes to investor expectations that had climbed "materially higher" ahead of the release. While the firm recognized the positive earnings surprise, it said the relatively small upgrade to organic sales was a disappointment and a key reason for the market’s negative reaction.
HSBC noted a mixed operational picture: on the one hand, Estee Lauder is making tangible progress addressing issues that weighed on the business in recent years. The company is regaining volume share in the U.S. market and is outperforming competitors in China, the research house observed. On the cost side, savings from the company’s Profit Recovery and Growth Plan are coming in strongly and, in HSBC’s view, should support a double-digit operating margin this year.
On the other hand, HSBC flagged concerns around near-term top-line momentum. The firm expects organic sales growth to weaken in the third quarter, forecasting that the second half of the year will be broadly similar to the first half. That outlook reflects tougher comparatives in China that HSBC believes will offset easier year-over-year comparisons in the U.S.
InvestingPro data included in the firm’s analysis shows that Estee Lauder’s revenue declined by 3.33% in the last twelve months, underscoring the ongoing revenue challenges the company faces even as margins recover. HSBC also acknowledged the company’s commitment to shareholders, noting a 1.41% dividend yield and that Estee Lauder has paid dividends for 31 consecutive years.
The market reaction and HSBC’s shift in stance occurred amid a broader divergence of analyst views following the earnings release. UBS trimmed its price target to $107 from $119 and maintained a Neutral rating, citing concerns about top-line guidance. Canaccord Genuity reiterated its Hold rating with a $100 price target. By contrast, BofA Securities raised its price target to $130, cited higher EPS expectations, and added the stock to its US 1 list. Meanwhile, Rothschild Redburn downgraded the stock to Sell and lowered its price target to $70, pointing to worries about margin recovery amid the company’s transformation under CEO Stéphane de La Faverie.
Operationally, Estee Lauder reported second-quarter fiscal 2026 sales growth of 5.6% year-over-year, slightly ahead of analyst projections in the 5.3-5.5% range. Organic sales, which exclude the effects of foreign exchange, increased 3.8% compared with the prior year.
In a separate product development move, Estee Lauder and Jo Malone London introduced an AI-powered Scent Advisor designed to improve the online fragrance shopping experience by simulating in-store consultations for remote customers.
For investors seeking additional analytical depth, InvestingPro provides more than 10 extra tips and a comprehensive Pro Research Report on Estee Lauder, offering further data and interpretation beyond headline results.
Context and takeaways
- HSBC downgraded Estee Lauder to Hold despite a Q2 earnings beat and an EPS guidance raise, citing investor expectations that had risen ahead of results.
- Operational progress is evident, with market share gains in the U.S., outperformance in China, and meaningful cost savings from the Profit Recovery and Growth Plan supporting margin recovery.
- Near-term top-line risks remain, with HSBC forecasting potential softening in organic sales in Q3 and a second half broadly similar to the first half due to tougher Chinese comparatives.
Investors should weigh the firm's signs of margin improvement against the revenue and organic growth headwinds highlighted in HSBC’s reassessment and the range of views from other analysts.