In short: Stephanie Link's final trade.
In short: Pick of the Week — "another turnaround morphing into a growth story." New CEO Stéphane de La Faverie's PRGP ("Beauty Reimagined") is working: adj. operating margin 15.0% vs 11.4% (+360bps), gross margin 76.4%, FCF $891M (vs $276M), China flipping from ~30%-of-sales headwind to tailwind (Mainland +11%). EL trades at decade-low P/S & P/E; with margins collapsed, P/S is the better turnaround metric — a return to 3× sales ≈ 60% upside (analyst PTs $90–100, ~15–30%). After EL popped ~12% on the killed Puig merger, wait for a pullback. A 2–3-year hold for a possible double; "an investment, not a trade."
Estée Lauder is an 80-year-old maker of prestige cosmetics, fragrances and skincare (it owns dozens of beauty brands). The stock cratered after 2022 for two reasons: China — once nearly a third of its sales — fell off a cliff after Covid, leaving the company with too much unsold inventory; and a pricey 2022 brand purchase (Tom Ford) had to be written down by about $1 billion. Both crushed profit margins. A new CEO arrived in 2025 and put a recovery plan (the "Profit Recovery and Growth Plan," or PRGP) in place: cut costs, focus on innovation, fix the sales channels. It's working — profit margins are climbing back, and the cash the business generates after spending (free cash flow) jumped from $276M to $891M in the latest quarter. China has swung from being the big problem to being a growth engine again.
The clever part of the argument is how to value a turnaround. On a price-to-earnings (P/E) basis EL looks expensive at ~25× — but that's misleading, because earnings are temporarily depressed by collapsed margins, which mechanically inflates the P/E. Haymaker says the right yardstick for a recovering company is price-to-sales (P/S), which strips out the margin distortion and is near a 10-year low. If EL's P/S simply returns to 3× sales (a level it has hit before), that's roughly 60% upside; even cautious analyst targets imply 15–30%. The catch: shares had just jumped ~12% on news a merger with Spain's Puig was called off, so Haymaker says wait for a dip before buying. This is a 2–3-year hold for a potential double — "an investment, not a trade."
In short: Named twice as context, not as a candidate: first in the risk list — "intense competition from rivals like Estée Lauder, Procter & Gamble, and Unilever" — and again on the onepager as one of L'Oréal's three "main peers". The only colour offered is a quote attributed to Leonard Lauder, "the son of Estée Lauder": "Think in decades, not quarters." No analysis or stance on the shares.
In short: Down ~70% from the peak (~$140–150 to ~$60) at ~15× EBIT on depressed EBITDA; a possible 2025 buy with a couple of bad quarters left. Would add nearer ~12× EBITDA / under ~$50 — wants a discount to the S&P, not a premium.
Estée Lauder is the big skincare, makeup and fragrance company. Its stock has collapsed about 70% from its peak (from roughly $140–150 to ~$60) as its profits fell sharply.
It's on the watch list, not a buy yet — there are probably a couple more bad quarters this year. The house would want it cheaper, around $50 or below (a discount to the overall market rather than the premium it usually commands), before stepping in, likely sometime in 2025.
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