Narrow-Moat Ulta Finishes 2021 on a Lovely Note and Outlook Looks Good; Shares Expensive

Ulta Beauty’s results for 2021’s fourth quarter beat our estimates as demand for beauty products remains high while the economy recovers from the worst of the pandemic. Further, despite concerns that inflation could affect consumer spending, the firm’s 2022 guidance for 3%-4% comparable sales growth and an operating margin of 13.7%-14% matches up well with the outlook presented at its October analyst event and our estimates of 3.5% and 13.4%, respectively. Given its momentum and a reversal of our prior expectation of a higher U.S. corporate tax rate, we expect to lift our fair value estimate of $282 per share by a high-single-digit percentage but continue to view its shares as overvalued.