Estee Lauder Earnings: Profit Recovery on Track With Improving Skin Care and Travel Retail Trends

Wide-moat Estee Lauder reported solid results in the March-ended third quarter of fiscal 2024 with sales and adjusted EPS up 5% and 106%, respectively. Encouragingly, the update showcased steady inventory management and agility in product innovation and consumer-facing initiatives that combined to fuel top-line growth, driving gross margin expansion that we view as crucial to its profit recovery trajectory. As a result, our 2024 $2.23 adjusted EPS estimate and operating margins averaging 16% over the next 10 years remain in place. However, cautious consumer spending in China remained a drag, leading us to trim our fiscal 2024 sales projection by a low-single-digit percentage but we maintain our 10-year sales CAGR forecast of 7%. Overall, our $210 fair value estimate is unchanged. Shares sold off 11% after the print, which we view as excessive, and we recommend that investors buy this deeply undervalued stock.