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Ulta Beauty (NASDAQ:ULTA) slid 0.4% on Friday even as Piper Sandler reiterated its Overweight rating following a visit to headquarters.
The firm said it likes the long-term outlook for ULTA and favors the name following the visit and a store tour with management.
“We continue to see several top line and margin drivers that make the high end of management’s long-term outlook look achievable,” Piper Sandler analyst Korinne Wolfmeyer wrote in a note. “When also considering valuation at what we view as attractive levels right now, we see a compelling entry point here for ULTA.”
The firm also reiterated its $575 price target, which compares to the $529 analyst price target average. Analysts are generally positive on the stock, which has 14 Strong Buy ratings from Wall Street analysts, three Buys, 10 Holds, one Sell and one Strong Sell. Of Seeking Alpha analysts, five have Buy ratings and three have Holds.
Revenue drivers
Shares have yet to recover from getting slammed after reporting Q1 revenue of $2.6B that missed estimates by $20M.
Piper Sandler said the stock’s valuation is “still sitting below historical and recessionary levels despite a stronger margin profile right now,” the analyst said. “The stock is getting overly punished for the expected margin contraction this year and growth deceleration.”
“We see several drivers that should keep revenue trending ahead of the broader beauty market,” Piper Sandler said.
Among those, the analyst cited deepening penetration within existing loyalty members, attracting new guests and reactivating lost guests. ULTA is also adding new brands and has a partnership with Target Corporation (TGT).
“We see great opportunity from the secular shift away from department stores and drug stores and also see ULTA’s broader price point assortment as a source of share capture opportunity from higher-end specialty beauty retailers,” Piper Sandler wrote.
Earlier this week, Argus reiterated a Buy rating on ULTA, noting the retailer has focused on influencer and media partnerships, social media, and other digital platforms to drive sales.
