On Wednesday, Deutsche Bank adjusted its financial outlook on ULTA Salon (NASDAQ: ULTA) shares, reducing the price target to $564 from the previous $636 while sustaining a Buy rating.
The revision follows a challenging day for the beauty and discretionary retail sector, sparked by ULTA's subdued commentary regarding the U.S. beauty market. ULTA's management pointed to a more significant slowdown than anticipated across various categories and price points. This trend, if it persists throughout the first quarter, is expected to lead to same-store sales (SSS) at the lower end of the forecast range, suggesting around 1% growth.
The analyst from Deutsche Bank expressed surprise at the extent of the slowdown and noted uncertainty about whether this represents a short-term fluctuation or a more substantial loss of market share to competitors. Notably, rivals have been expanding their distribution, with Amazon (NASDAQ:AMZN) launching Clinique and Sephora's partnership with Kohl's (NYSE:KSS) now generating $1.4 billion in sales, a significant increase over the past three years.
Adding to the concerns, ULTA provided a softer initial guidance for 2024 just three weeks prior to this update. The recent (unofficial) guidance revision, coming so soon after the initial forecast, has been characterized as disappointing by the analyst. Consequently, Deutsche Bank has lowered its first-quarter and full-year 2024 estimates for ULTA.
Despite the 15% decline in ULTA's stock price on the previous day, which now values the company at a 17 times price-to-earnings (P/E) ratio based on the anticipated earnings per share (EPS) of $26 in 2024, the analyst suggests that the stock may remain range-bound until there is a clear indication of top-line growth reacceleration.
InvestingPro Insights
In light of Deutsche Bank's recent price target adjustment for ULTA Salon, a closer look at real-time data and insights from InvestingPro can provide investors with additional context. ULTA's stock has experienced a notable downturn over the past week, with a one-week price total return of -15.85% and a one-month total return of -19.5%. This aligns with the concerns raised by ULTA's management regarding a slowdown in the U.S. beauty market.
InvestingPro Tips highlight that the Relative Strength Index (RSI) suggests the stock is currently in oversold territory, which may interest investors looking for potential entry points. Moreover, ULTA's liquid assets have been reported to exceed short-term obligations, indicating a position of financial stability. However, with 22 analysts revising their earnings downwards and the stock trading at a high Price / Book multiple of 9.32, investors may exercise caution. It's worth noting that the P/E ratio stands at 16.83, which is relatively high considering the near-term earnings growth.
For those considering a deeper analysis, InvestingPro offers additional tips on ULTA, which can be accessed by using the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription. There are a total of 12 InvestingPro Tips available that could further guide investment decisions. With the next earnings date approaching on May 30, 2024, investors will be keenly watching for signs of recovery or further signs of market challenges.
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