We expect Estee Lauder Companies Inc. EL to beat estimates when it reports second-quarter fiscal 2017 results on Feb 2, 2017.
The company has exhibited decent performance in the past one year, evident from positive earnings surprises in all of the last four quarters, at an average surprise of 11.9%. Notably, during first-quarter 2017, Estee Lauder beat earnings estimates by 6.33%.
The solid fundamental of the stock is visible in the share price movement. The stock price has declined 5.3% in the last three month, outperforming the Zacks categorized Cosmetics and Toiletries industry which declined 17.1% during the same period.
Why a Likely Positive Surprise?
Our proven model shows that Estee Lauder is likely to beat earnings because it has the right combination of two key ingredients.
Zacks Earnings ESP: The company’s Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is 0.86%.This is because the Most Accurate estimate is at $1.17, while the Zacks Consensus Estimate is pegged lower at $1.16. This is very meaningful and a leading indicator of a likely positive earnings surprise for shares. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Zacks Rank: Estee Lauder currently carries a Zacks Rank #3 (Hold). Note that stocks with Zacks Ranks of #1 (Strong Buy), 2 (Buy) and 3 have a significantly higher chance of beating earnings. The sell rated stocks (#4 and 5) should never be considered going into an earnings announcement.
The combination of Estee Lauder’s Zacks Rank # 3 and an Earnings ESP of 0.86%, makes us reasonably optimistic about a possible earnings beat on Feb 2.
Factors that are Driving Better-than-Expected Results
Estee Lauder is undertaking several strategic acquisitions to expand in the makeup category. The company took over prestige makeup brand, BECCA's in Nov 2016. The brand’s strong presence in fast growing North America specialty multi-retailers and a loyal customer base is likely to be beneficial for the company. Further, in Dec 2016, it acquired makeup brand Too Faced as an attempt to bolster its presence in the cosmetics category. These acquisitions are expected to be accretive to second-quarter earnings.
Further, the company introduced products like anti-ageing skincare and foundation which were well received by the ageing population of the U.S. Products like The Estee Edit and Advanced Night Repair PowerFoil Mask are expected to help the company bolster its market share in the makeup category in the to-be-reported quarter.