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© Reuters Jefferies remains positive on Estee Lauder’s (EL) Tom Ford deal
By Sam Boughedda
Estee Lauder (NYSE: )’s price target was raised to $270 from $230 at Jefferies on Friday following the Tom Ford acquisition announcement.
The more than $2 billion acquisition is expected to close in the first half of next year.
Jefferies analysts maintained a Buy rating on Estee Lauder, telling investors the company remains positive on the deal because they see little or no risk since EL has operated TF Beauty since 2006.
“The biggest takeaway from the opportunity is the expansion of the beauty biz online and into other categories, along with royalties from fashion and eyewear,” the analysts wrote. “The Tom Ford fashion brand generated $220M in 2021 and we estimate eyewear to generate ~$250M a year. Assuming both have a 7% royalty rate, EL will record ~$35M in royalty revenue which will decrease EBIT.”
In addition, they said that the relaxed Covid rules in China are also a reason for the company’s positivity in the stock.
“EL’s current FY guidance puts a gradual improvement in Mainland China throughout FY23 from -MSD in Sept Qtr and the return of Travel retail in FY24. Travel Retail is the most profitable channel for beauty in ~ 40% OM% and China is the most profitable region at ~20% OM%. A faster than expected recovery should lead to significant revenue growth in the coming quarters,” analysts said.
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