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Innovation Drives Estee Lauder's Momentum

A revitalized portfolio and strengthened execution stand to support sales gains.

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We believe  Estee Lauder (EL) remains acutely focused on developing products that resonate with specific consumer tastes, diversifying the channels and countries in which it sells its offerings, and supporting execution through sustained investments behind its brands, the funds for which have been freed up by ongoing cost-saving programs. In combination, we think these efforts support Estee’s leading competitive edge. We see significant opportunities for growth in developing markets and the digital channel, which we expect to play an increasingly large role in the beauty consumer’s path to purchase.

These dynamics have already been incorporated into our longer-term outlook for the company, which calls for 6% average sales growth and high teens operating margins. We think investors have flocked to the cosmetics sector as growth across the broader consumer goods landscape remains muted, leading to few discounts across the space. While Estee Lauder shares currently trade above our fair value estimate, we think they are worth keeping an eye on, as we’d find them compelling at a wider margin of safety.

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Sonia Vora does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.