Estee Lauder (EL) falls after seventh downgrade this year on Asia concerns

Estee Lauder (NYSE: EL) shares fell over 1% in pre-open trading Tuesday after receiving its seventh Wall Street downgrade so far this year.

Citi analyst Filippo Falorni cut his rating to Neutral from Buy while lowering his price target to $195 from $240.

"We are downgrading our rating on EL from Buy to Neutral as we see increasing risks to the recovery path for the Asian TR business over the next 6-12 months," the analyst commented.

The firm remains optimistic about EL's long-term revenue and margin opportunities, but expect weaker results in the next few quarters due to negative incremental data points (China macros/category trends, share dynamics, cybersecurity incident).

Citi's China Consumer team's channel checks found that: (1) Chinese consumers are shifting from premium to mass-market brands, (2) EL's inventories in some TR locations are high, and (3) EL's Taobao/Tmall sales mix has heavily shifted to Taobao, posing risks to brand image and management challenges.

"Importantly, while we think the market is braced for a low initial FY24 guidance, we worry continued weakness in results may lead investors to question the “normalized earnings power” of EL for FY25," the analyst added.

The firm is lowering FY24 EPS estimates to $4.95 from $5.00 and FY25 EPS estimates to $6.71 from $6.86.

Shares of EL are down 27.5% year-to-date as Monday's closing stock price.

By StreetInsider.com Staff

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