We came across a bullish thesis on The Estée Lauder Companies Inc. (EL) on Substack by Alexandru Dragut. In this article, we will summarize the bulls’ thesis on EL. The Estée Lauder Companies Inc. (EL)’s share was trading at $74.78 as of Feb 25th. EL’s trailing and forward P/E were 80.96 and 74.63 respectively according to Yahoo Finance.
A beautiful woman applying makeup with grooming products from the company.
Estée Lauder, a dominant force in luxury beauty, is navigating a turbulent period marked by declining sales and restructuring efforts. Despite a 6% sales drop in Q2, the company’s portfolio, featuring iconic brands like La Mer, Clinique, and Jo Malone London, remains a competitive moat. With a 30% share in luxury fragrances and a strong global footprint, Estée Lauder’s long-term potential is tied to its ability to execute its transformation strategy effectively.
Launched in February 2025, the “Beauty Reimagined” initiative aims to reignite sales growth and restore double-digit operating margins. The strategy focuses on responding to evolving consumer preferences, expanding into high-growth sales channels, and adjusting pricing to capture a broader market. A key pillar of this shift is the company’s digital expansion, including its presence on TikTok Shop in the U.K., Amazon’s Premium Beauty store in the U.S., and physical store launches in Thailand and China. The company’s strong performance during the 11.11 Global Shopping Festival signals that these efforts could yield positive results.
With roughly 30% of sales tied to Asia, macroeconomic trends in China and Korea, as well as the rebound of travel retail in destinations like Hainan, could be pivotal catalysts for a turnaround. The company is also making strategic bets on innovation, partnering with MIT and launching a BioTech Hub in Belgium to create sustainable, high-margin products. Rapid product launches, such as MACximal Lipstick and Clinique CX, are designed to keep the brand relevant and drive demand, though these initiatives will take time to materialize.
The Profit Recovery and Growth Plan (PRGP) is another crucial element of Estée Lauder’s transformation. Aiming to cut $800 million to $1 billion in annual costs by 2027, the plan includes workforce reductions of up to 7,000 jobs, supplier consolidation, and outsourcing. Early results are promising, with gross margins improving 3.1 percentage points to 76.1% in Q2. However, persistent headwinds remain, including weak consumer spending in Asia, ongoing tariff risks, and heightened competition from L’Oréal and Coty. Additionally, Estée Lauder’s reliance on department stores—a channel in structural decline—could further pressure sales.
Financially, the company is in a transition phase. A net loss of $1.64 per share in Q2—driven by over $1 billion in write-downs and restructuring costs—masks an adjusted profit of $0.62 per share. Cost-cutting efforts boosted gross margins, but operating margins remain under pressure at -14.5% (or 11.5% adjusted). Free cash flow generation has weakened, with operating cash flow falling to $387 million from $937 million, and cash reserves declining to $2.59 billion. Meanwhile, long-term debt remains a concern at $7.28 billion, constraining financial flexibility and posing potential refinancing risks.
Estée Lauder’s stock currently trades at 25 times next year’s expected earnings, below its five-year average of 35 times. If PRGP successfully restores margins above 11.5%, the stock could re-rate to 30 times earnings, implying a 30% upside. At a market cap of $26.96 billion, the company is a turnaround play—cheap for a reason, with significant upside if management can execute its strategy. While a full recovery could yield 100%+ returns, the risks associated with weak consumer demand and execution missteps make it a high-risk, high-reward bet.
The Estée Lauder Companies Inc. (EL) is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 45 hedge fund portfolios held EL at the end of the third quarter which was 49 in the previous quarter. While we acknowledge the risk and potential of EL as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than EL but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.