Editor’s Note: This analysis was originally published as a stock note by Morningstar Equity Research.
The beauty name was under pressure following the Trump administration’s tariff announcement on April 2, reflecting investors’ concerns about the higher costs of products, primarily from Europe. US-based Estee Lauder he and coty cty They sold 15% and 7% respectively, but the price movement was calm with their European-based companions. lor (negative 2%) and Puig Puig (Negative 5%).
We acknowledge that the long term of such tariffs is likely to affect the financial results of beauty companies by boosting costs and attenuating demand. However, given the possibility of policy reversals pending US EU negotiations, we will not currently incorporate tariff scenarios into the assessment of the basic case. Furthermore, given the substantial pricing power with gross profits averaged over 70% in the US and European beauty range, coupled with the flexibility of the global supply chain, there is room for beauty names to manipulate and offset the impact of tariffs. Specifically, Estee, L’Oreal and Coty have all operated factories in the US for decades, so they should have the flexibility to move production to lower tariff exposures. Small Fragrance Specialist Puig has only factories in Europe and India, but the company expects to be able to leverage the high-end positioning of European brands to convey some of the impact of tariffs through price increases.
Therefore, we maintain our fair value estimates for Wide Mort Esti ($120) and L’Oreal (410 euros) and the fair value estimates for Mort Noucoty ($9.6 and 9.3 euros) and Puig (22 euros). All four names are traded at discounts, but Estee believes it offers the most attractive risk/reward mix, 50% below its fair value estimate.
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