Goldman Sachs upgrades Estee Lauder on China rebound, travel retail recovery

Investing.com -- Goldman Sachs says Estee Lauder is nearing a return to revenue growth and margin recovery after years of underperformance, as it upgraded the cosmetics maker to Buy.

The brokerage also upp-ed the price target to $115. Estee Lauder’s sales could begin growing again as soon as the September quarter, with double-digit operating margins returning in fiscal 2027 and beyond.

Stabilization in China, where the company’s mainland sales returned to mid-single-digit growth in the second half of fiscal 2025 should help in the turnaround of the company.

Conditions are improving in travel retail, with inventories normalizing and Hainan resuming growth in May.

Goldman Sachs also sees appeal of the prestige beauty industry, expecting to grow at a mid-single-digit pace over the long term.

Analysts pointed to market share gains in the United States, where Estee Lauder has expanded its presence on Amazon, now offering 11 brands. Goldman said this broader channel mix and a push into international e-commerce should help extend the recovery.

The firm highlighted cost savings and productivity gains that lifted Estee Lauder’s gross margin by more than two percentage points in fiscal 2025.

It expects the company to deliver roughly 500 basis points of operating margin expansion by fiscal 2028, aided by reinvestment in innovation and marketing.

Management’s “Beauty Reimagined” strategy, focused on faster product launches and consumer-first execution, was flagged as a key element of the expected turnaround.

Despite short-term pressures, including muted guidance for fiscal 2026 sales growth of up to 3%, Goldman argued that the combination of improving fundamentals and structural industry growth should re-rate the stock.

Estee Lauder shares trade at about 42 times forward earnings, below pre-pandemic levels, and 18 times forward EBITDA, compared with a five-year average of 24 times.