Here’s Why Hedge Funds Have Been Buying Ulta Lately

Over the past 6 months Ulta Salon’s stock has been red hot rebounding from a low of $74.14 in March and soaring to an all time high of $132.75. Strong earnings at the end of the 2nd quarter where a major contributing factor to its growth. In September Ulta reported earnings of 70c per share and revenue of $601 million compared to the Wall Street consensus of 67c per share and $589.04 million in revenue.

Ulta Salon, Cosmetics & Fragrance, Inc. (ULTA), is expected to report FQ3 2013 earnings on December 5th after the close. The information below is derived from data submitted to the Estimize platform by a set of Buy Side and Independent analyst contributors.

The current Wall Street consensus expectation is for ULTA to report 74c EPS and $622.57M Revenue while the current Estimize consensus from 4 Buy Side and Independent contributing analysts is 75c EPS and $624.29M Revenue. The magnitude of the difference between the Wall Street and Estimize consensus numbers often identifies opportunities to take advantage of expectations that may not have been priced into the market. In this case, we’re seeing a small sized differential between the Estimize and Wall Street numbers compared to previous quarters.

Over the past 4 months the Wall Street consensus trend for EPS has fallen from 75c to 74c while Wall Street revenue expectations have increased from $617.65M to $622.57M. The Estimize EPS and Revenue consensus have creeped up near the end of the quarter with EPS going from 74c to 75c and Revenue going from $622.57M to $624.29M.

Over the previous 8 quarters, ULTA has beaten the Wall Street consensus for both EPS and revenue all 8 times. Over the past 7 quarters for which there is sufficient data ULTA has beaten the Estimize EPS consensus 2 times, failed to meet it twice, and has been accurately predicted 3 times. In terms of revenue ULTA has beaten the Estimize consensus 3 times in the past 7 quarters.

The distribution of estimates published by analysts on Estimize range from 74c to 75c EPS and $620.65M to $629.50M Revenues. We’re seeing a narrower than normal distribution of estimates this quarter for ULTA than normal. The size of the distribution of estimates relative to previous quarters often signals whether or not the market is confident that it has priced in the expected earnings already. A narrower distribution signaling the potential for less volatility post earnings, a smaller vice versa.

The analyst with the highest estimate confidence rating this quarter is brianibanez who projects 74c EPS and $624.0M Revenue. Estimate confidence ratings are calculated through algorithms developed by our deep quantitative research which looks at correlations between analyst track records and tendencies as they relate to future accuracy.

Given the minor increase in the Estimize EPS consensus recently and the company’s history of beating Wall Street’s expectations over the past 2 years on both the top and bottom line, we expect another solid quarterly performance report out of ULTA. The stock has nearly doubled in price over the past 6 months and is currently trading near an all time high. If ULTA beats expectations on Thursday we could see the stock push higher into unchartered territory.