Estee Lauder Downgraded by Analysts

Investing.com — Estee Lauder (NYSE: EL) received two downgrades from Wall Street analysts after its latest quarterly earnings report, highlighting prolonged sales declines and strategic execution issues with the new leadership.

Wells Fargo's Downgrade

Wells Fargo downgraded the stock to Equal Weight, lowering its price target from $105 to $72. The firm expressed skepticism about Estee Lauder's strategy, noting that management attributes weaknesses in Asia and China to key issues. However, analysts believe the company's operational inefficiencies are the main problem.

Wells Fargo indicated that the company faces “industry-worst operational deleverage”, citing a significant drop in revenue and gross profits since 2019 and declining earnings per share (EPS). The firm stated, “We see little point spending when a key headwind is the China category,” while also questioning management's plan to tackle structural issues.

Recently, Estee Lauder withdrew its fiscal 2025 guidance and announced a 47% dividend cut, which Wells Fargo interprets as an attempt to give incoming CEO Stephane de la Faverie more flexibility. However, analysts remained doubtful about the new leadership's ability to address these operational issues.

JPMorgan's Position

JPMorgan also downgraded Estee Lauder to Neutral from Overweight, lowering its price target to $72 from $113 per share, citing “prolonged sales declines and limited visibility on recovery.” The bank adjusted its estimates due to weaker-than-expected demand, particularly in Asia and China, where the effectiveness of government stimulus on luxury beauty spending may be slower.

While JPMorgan sees potential in de la Faverie's leadership, it recommends that investors wait for clearer signs of improvement, stating, “we don't expect to receive any visibility for at least another three months.”

With ongoing operational challenges and market uncertainties, analysts advise a cautious wait-and-see approach as Estee Lauder navigates through restructuring efforts.