Ulta Beauty's stock on track for biggest gain in 2 years. One analyst says it's still undervalued.

MW Ulta Beauty's stock on track for biggest gain in 2 years. One analyst says it's still undervalued.

By Ciara Linnane

Beauty and cosmetics company's latest earnings cheered investors and at least 17 analysts hiked stock price targets

Ulta Beauty Inc.'s stock soared 12% Friday, boosted by a flood of stock-price-target hikes from analysts who cheered the cosmetics company's latest earnings and raised guidance.

The stock was on track for its biggest one-day gain in more than two years, according to Dow Jones Market Data. The last time it gained as much was May 22 of 2022, when it closed up 12.5%.

Some 17 analysts covering the stock on FactSet raised their stock price targets and D.A. Davidson set a new Street high of $510, after raising it 17% from $435 previously.

Analyst Michael Baker said the stock is still trading at a discount on an absolute and relative basis and reiterated his buy rating.

Oppenheimer said it looks "very favorably" on a much better-than-expected report with per-share earnings of $5.14 easily surpassing the consensus of $4.53, while same-store sales returned to positive territory a few quarters earlier than it was expecting.

"Management also lifted FY24 guidance, which represents a clear positive surprise to us," Oppenheimer analysts Rupesh Parikh and Erica Eiler wrote in a note to clients late Thursday.

Ulta $(ULTA)$ and Target Corp. $(TGT)$ remain their favorite rotation plays for 2025, they wrote.

"In our view, today's report along with recent challenges at Kohl's Corp. $(KSS)$ should help to put to rest some bearish concerns on ULTA,' they wrote.

Ulta's stock has underperformed this year with a 22% decline year-to-date, while the S&P 500 SPX has gained 27%.

The company said its efforts to counterbalance a slowdown in demand and steeper competition were showing signs of "gaining traction," as it raised its guidance for the full year.

The company is competing with other upstart brands, as well as retail giants Walmart Inc. and Amazon.com Inc., which have their own ambitions for the beauty space.

Raymond James analyst Olivia Tong cheered positive same-store sales.

"We think a combination of product newness, more effective promotion, and stabilization in shrink bode well for a faster recovery in FY25," Tong wrote in a note to clients.

Raymond James has an outperform rating on the stock and raised its price target to $495 from $430.

Bank of America was more cautious, sticking with a neutral rating on the stock.

"We think long-term sales opportunities are balanced by near-term revenue and margin pressure," analysts Lorraine Hutchinson and Melanie Nuñez wrote in a note.

But they raised their price target to $460 from $400 on a more favorable sales outlook.

Highlights from the quarter included improving prestige market share trends in makeup and hair, which had been pressured, the analysts wrote. Fragrance and skin care saw positive high-single-digit and mid-single-digit same-store sales gains.

Exclusive collaborations, including one with the movie juggernaut "Wicked" also contributed to growth, they noted.

"it's just math," said analysts at JPMorgan, who reiterated their overweight rating on the stock.

The setup for 2025 continues to shine, wrote analyst Christopher Horvers in a note.

"As we've consistently argued, we believe the short narrative that ULTA is structurally encroached is strongly misplaced, and we continue to believe the pain has been largely cyclical (and the brands need ULTA!)," he wrote.

Read now: Ulta Beauty unveils $3 billion share buyback program and plans to open 200 new stores in next three years

-Ciara Linnane

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December 06, 2024 10:40 ET (15:40 GMT)

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