Piper Sandler is “somewhat less optimistic” about Elf BeautyNYSE:Elf)’s shares have fallen due to a weak macroeconomic environment and weak back-to-school sales, but we remain confident in the company as management’s outlook is “achievable” for both revenue and earnings, with room for upside. For a chance to rise.
“Assessing the valuation movement over the past few weeks (-37% since the release of first-quarter earnings on Aug. 8), we see a significant disconnect between the relative strength and resilience being generated by ELF, so we are buying the weakness,” Piper Sandler analyst Colin Wolfmeyer said in a research note on Monday.
ELF management acknowledged that tracking data shows demand, particularly for back-to-school sales, is slowing, but they don’t see any signs of the trend changing “materially” from current levels in the low to mid teens. This appears to be entirely macro-driven, with competitors not experiencing significant share losses, only share gains, Wolfmeyer said.
While there has been no indication from management that international and digital sales will offset weak domestic demand, Wolfmeyer continues to see these channels as again a big contributor to the company’s potential to beat full-year sales expectations.
“There may be a (very) slight headwind in margins due to lower volumes, but nothing that would cause management to deviate from the high end of its bottom-line profit targets,” she added.
Wolfmeyer maintained his Overweight rating on Elf Beauty (ELF) but lowered his price target by 38% to $162 given the stock’s reversal following the release of first-quarter earnings.
Stocks Falling by more than 4% Monday.
