A giant with feet of clay. This risks becoming the most apt description for Estée Lauder, one of the largest US companies in the cosmetics market which, according to analysts, risks soon becoming the object of interest for potential buyers. First of all the giant of giants Lvmh.
Estée Lauder finds itself at a turning point: on the one hand, they are chasing each other restyling hypothesis, a profound restructuring capable of relaunching the company. On the other hand, the transfer items or, even, a hostile takeover.
At the basis of both options, as MF points out, there are the numbers of a company that have been showing a decrease in revenues for over a year, but above all the missed forecasts that follow one another quarter after quarter.
The collapse of Estée Lauder on the stock market
Third alarm bell is the stock market performance of a stock. On November 2, Estée Lauder shares fell by -20%, the cosmetics giant's steepest drop in six years. Broadening the horizon, since the beginning of the year the performance is even more disastrous, with a drop of almost -50% and a market cap dropped to 45 billion dollars.
The collapse of the stock on Wall Street, Mf points out, seems to coincide with the acquisition of Tom Ford, announced just over a year ago. A 2,8 billion dollar operation which perhaps represented "a bit more than you can chew" for the Beauty company in a period in which it found itself facing the economic slowdown resulting from the international socio-political context and the excess inventory.
The accounts of Estée Lauder
The stock market collapse at the beginning of November coincided with the publication by Estée Lauder of the results for the first quarter of the 2024 financial year, which however opened with an unexpected net profit of 31 million dollars (equal to 29,4 million euro at today's exchange rate). However, the market has placed emphasis on “headwinds from Asia” which led the group to reduce its forecasts for the second quarter. Estée Lauder has indeed provided estimates below expectations, with adjusted earnings per share between 0,48 and 0,58 dollars (0,45-0,55 euros), much lower than the FactSet consensus of 1,21 dollars.
For fiscal 2024, EPS forecasts fell to $2,17-2,42 (2,06-2,29 euros) from the previous $3,50-3,75. “Although the first quarter was better than expected, we reduce our forecast for fiscal 2024 due to additional external factors, in particular slowing growth in the Prestige beauty sector in Asia and mainland China, currently confirmed by the pre-sale phase of the 11.11 shopping festival, and the risks of business disruption in Israel and other parts of the Middle East,” Freda specified.
Estée Lauder between relaunch or sale
The most insistent hypothesis that has been floating around for months concerns the possible acquisition of Estée Lauder by LVMH. According to what Luca Solca, Senior Research Analyst at Bernstein, told Mf, despite the recent decline in the stock market, Estée Lauder remains a very interesting company, especially considering the growing interest of luxury companies in the beauty and cosmetics sector. Another analyst suggests that the significant drop in market value could make the company vulnerable to a hostile takeover. However, it remains to be seen whether the controlling shareholders will opt for a relaunch rather than a sale.
Luxury, the entire sector is in difficulty
In the luxury sector, the difficulties do not only concern Estée Lauder. In a report with the emblematic title “Goodbye stellar growth”, the analysts of Hsbc they underlined how the sector's prices could remain "subdued for another five or six months". A consideration that led the institute's analysts to revise target prices downwards of the entire sector, with a consequent drop in stocks on the stock exchange. According to them, in fact, luxury could suffer particularly a recession scenario, with investors predicting a "lackluster" first half of 2024 for the entire segment after the Guinness book increases recorded in past years.
What made particular noise was the cut in the target price (from 900 to 880 euros). Lvmh. In the last 5 years, moreover, the shares have recorded an increase of 190%, but the trend seems to have reversed after the pandemic, with the French giant losing more than 25 billion in market capitalization.
Same fate also for Moncler, went from 74 to 60 euros per share, burberry, 2.200 to 1.750 pence, e prada, from 65 to 61 euros. In contrast, however Hermes, whose target price rose from 1.880 to 1.900 euros.
