Estee Lauder Companies Inc (EL): Why is the Market in Love With This Beauty Play?

And finally, the full year revenue guidance has now been moved to 6%, which is at the lower end of the previous guidance of 6%-8%. The reason cited for this was that the overall market is now predicted to grow 3% instead of 5%.

What the industry is saying

Revlon Inc (NYSE:REV) is more exposed to the mass market and it is suffering accordingly. While declining sales in Europe are expected, the slowdown in its Chinese sales (in line with the economy) is more disappointing. Its Asia Pacific sales declined 2% mainly due to declines in its color cosmetics in China. This is not a good sign in a market that is supposed to provide its long term growth prospects.

Similarly, The Procter & Gamble Company (NYSE:PG) recently announced a net sales decline of 2% in its beauty segment. Organic volumes and sales were down 1% each. The company cited a heavy competitive and promotional environment in hair care and skin care, although sales increased in its salon professional sub-segment. This is further evidence of a bifurcation between the prestige and mass market. In fact, The Procter & Gamble Company (NYSE:PG) faces challenges in keeping market share in all of its categories.

The last two companies are somewhat less reliable indicators. Nu Skin Enterprises, Inc. (NYSE:NUS) has been reporting strong growth but I think this company is partly reliant on keeping its distributors active and motivated. Avon Products, Inc. (NYSE:AVP) is in the middle of a restructuring program that will take time. Indeed, sales are still declining in the US and China. Avon Products, Inc. (NYSE:AVP) is more of an internal restructuring story.

It is not a positive industry score card, and near term conditions do not look great for Estee Lauder Companies Inc (NYSE:EL).

The bottom line

In conclusion, while I think the company has good long term prospects, it is hard to argue that it is a good value. Moreover its near term prospects (despite the hike in EPS guidance) appear to have gotten worse. The market is giving it the benefit of the doubt for now but, I’m not sure it’s time to follow it.

The article Why is the Market in Love With This Beauty Play? originally appeared on Fool.com.

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