On Thursday, UBS analyst Michael Lasser adjusted the price target for ULTA Salon (NASDAQ: ULTA) shares, reducing it to $550 from the previous $690.
The firm continues to endorse the stock with a Buy rating. The revision follows expectations that ULTA Salon will present a conservative outlook for its 2024 guidance, potentially forecasting sales growth in the low single-digit percentage range, contrary to the initially projected 4-5%.
ULTA Salon is anticipated to report first-quarter comparable sales growth between 1% and 2%. Lasser suggests that a more cautious guidance could lead to sales comps in the low single-digit percentage range. If fiscal year 2024 comps were to decelerate to 2-3%, earnings per share (EPS) might align with approximately $25-$26.
Even at the lower end of this range, the stock’s current trading valuation is deemed attractive, hovering around 16 times earnings, compared to the five-year historical average of approximately 22 times.
The price target adjustment also considers the potential for ULTA Salon to recalibrate earnings forecasts to levels that investors might find more attainable. This reassessment could serve as a positive catalyst, especially considering the current favorable risk-reward balance.
ULTA’s recent statements have indicated a slowdown in the beauty sector and its own operations, which has already set market expectations for a subdued outlook. Over the past three months, ULTA’s shares have decreased by 24%, contrasting with a 5% increase for the S&P Retail Select Industry Index (XRT) and a 6% rise for the S&P 500.
The fundamental debate revolves around whether ULTA’s slowdown is due to a weakening core consumer base or rising competition. Lasser believes it is likely a mix of both factors.
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Despite a noted moderation in ULTA’s performance and the broader beauty category in the first quarter, there are still several reasons to be optimistic about the company’s ability to maintain its market share and protect its margins more effectively than what the current share price suggests.
Consequently, only slight adjustments have been made to the fiscal year 2024 and 2025 earnings estimates.
InvestingPro Insights
As ULTA Salon navigates the challenges of a conservative outlook for 2024, real-time metrics from InvestingPro provide a deeper understanding of the company’s financial health and market positioning. The company’s market…
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