Does Estée Lauder downgrade suggest its performance is peaking?

21-Mar-2016 - Last updated on 21-Mar-2016 at 15:13 GMT

Estée Lauder Companies’ results might have come in above Wall Street’s expectations for the past 18 quarters, but Goldman Sachs has taken the decision to downgrade it.

The company has perhaps weathered the strong US dollar better than any other US-based global cosmetics player, but could the company’s rating with investors be peaking.

Goldman Sachs analysts downgraded shares in the company from a buy rating to a neutral rating, in a research report that was published at the end of last week.

Growth potential peaking?

The market capitalization figures are likely to indicate that Estée Lauder’s future growth potential may be peaking.

In the report the analysts explained that the move was a valuation call, which had been deduced from assessing the company’s high market capitalization rating compared to its major competitors.

Estée Lauder currently has a market capitalization value of $34.2bn, which compares to estimates that currently put Coty at $10.8bn and Avon Products at $1.8bn.

The company has continued its strong run of financial results, reporting industry leading revenue growth for its second quarter on the back of like-for-like gains worldwide.

Strong results but challenged outlook

Back in February, the company released very strong second quarter and half year results, but despite performance, executives did say the outlook for the business was challenging, citing the strong US dollar as a major hurdle during the course of 2016.

The company reported that net revenue for the quarter grew by 3% to reach $3.12bn, but excluding the impact of foreign currency the figure represented an increase of 8%.

Net earnings increased by 2% to reach $446.2m, compared to a figure of $437.7m in the corresponding period last year.

Looking ahead to the third quarter and full year, the company said at the time that currency headwinds will continue to impact growth, compounded by an economic slowdown in markets such as Hong Kong and China, as well as several other developing countries.

Net sales for the third quarter are forecast to increase at around 2 - 3%, while for the full financial year revenue growth should register in the region of 4 - 5%.