UBS lowered its price target on Estée Lauder (NYSE:EL) to $107.00 from $119.00 on Monday and kept a Neutral rating on the company, pointing to doubt over the sustainability of the group’s revenue trajectory and the current valuation multiple.
The firm highlighted that management’s top-line guidance effectively assumes no material improvement in the second half of the fiscal year despite easier year-over-year comparisons. UBS analyst Peter Grom said this outlook, combined with doubts around the pace of organic expansion, underpins the reassessment of the price target.
Market action has been notable: the stock fell 16.24% over the past week according to InvestingPro data, and UBS noted that 18 analysts have recently trimmed earnings estimates for the upcoming period. Those downward revisions are consistent with the broker’s caution on both near-term results and the shape of a recovery.
Valuation is another central concern. Estée Lauder currently trades at a Price/Book ratio of 8.93 and an EV/EBITDA multiple of 19.18, even though the company was not profitable over the last twelve months. UBS flagged that the stock is trading at roughly 40 times its revised next-twelve-months earnings estimate, a level that the broker finds hard to justify without clearer improvement in organic growth and profitability.
UBS described the company as "clearly in the early innings of a turnaround," but said that the combination of high multiples and limited visibility into an accelerating top and bottom-line trajectory means it needs either a more attractive entry point or greater clarity from management before adopting a more constructive stance.
Other broker activity and company developments
Estée Lauder reported 5.6% year-over-year sales growth for the quarter ending in December, marginally ahead of analyst expectations. On an organic basis - excluding foreign exchange effects - sales rose 3.8% from the prior year.
Broker responses have varied. Canaccord Genuity maintained its Hold rating with a $100 price target. BofA Securities increased its price target to $130 and added Estée Lauder to its US 1 list, citing higher earnings-per-share expectations. In contrast, Rothschild Redburn downgraded the stock from Neutral to Sell and cut its price target to $70, expressing concern about the company’s margin recovery amid the significant transformation tied to the "Beauty Reimagined" strategy.
Alongside financial results and analyst reactions, Estée Lauder has progressed with strategic initiatives. The company’s New Incubation Ventures made its first Latin American investment by acquiring a minority stake in XINÚ, a Mexican luxury fragrance brand. The firm also rolled out a digital experience with Jo Malone London - an AI-powered Scent Advisor tool intended to improve the online fragrance shopping experience in the United States and the United Kingdom.
Bottom line
UBS’s adjustment reflects a mix of top-line caution, multiple compression risk and an uneven analyst outlook. While the company has taken steps to refresh its product and digital offerings and has reported modest sales growth, brokers remain divided on the timing and magnitude of margin recovery and sustainable organic growth. For now, UBS says it needs either a lower entry valuation or clearer evidence of accelerating revenue and profit trends before changing its Neutral stance.