Billionaire and activist investor Nelson Peltz is exploring a potential shake-up at Estée Lauder (NYSE:EL), including the ouster of long-time CEO Fabrizio Freda, the New York Post reported. The news comes as the cosmetic giant delivered mixed fiscal third-quarter results and lowered its full-year outlook, citing a slower-than-anticipated recovery in the Asian travel retail market. Shares were up more than 3% in Monday’s pre-market trading.
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No information was available about any purchase of Estée Lauder shares by Peltz. However, sources said that many directors and institutional investors are now “recruiting” shareholder activists, as they think that the CEO has “lost his touch.” Further, while there could be attempts to revamp the company’s brands and reduce costs, Peltz’s bigger aim might be to push for an outright sale of the company.
Earlier this year, Peltz ended his proxy fight with Walt Disney (NYSE:DIS) after the company announced major restructuring efforts.
Estée Lauder’s net sales declined 12% year-over-year to $3.8 billion in Q3 FY23, due to weakness in the Asian travel retail business in Hainan (an island in the southernmost province of China) and Korea as well as currency headwinds. Also, the company continued to be under pressure due to high inflation and recession fears. Adjusted EPS plunged 75% to $0.47.
Estée Lauder now expects full-year FY23 net sales to fall by 10% to 12%, compared with its prior outlook of a 5% to 7% decline. The company projects adjusted EPS to plunge by 50% to 51% on a constant currency basis, compared to the prior guidance of a 27% to 29% drop.
Is EL a Good Stock to Buy?
Following last week’s results, Raymond James analyst Olivia Tong lowered her price target for Estée Lauder to $240 from $315 and reiterated a Buy rating. Estée Lauder’s Q3 FY23 report was “close enough” to her expectations, but the material guidance cut was not expected. Tong noted that it marked the third sequential guidance downgrade.
Nevertheless, Tong remains bullish on the company as she believes in its long-term growth opportunity, even if the recovery takes more time than initially expected.
Wall Street’s Strong Buy consensus rating for Estée Lauder stock is based on 19 Buys and five Holds. The average price target of $253.79 implies upside potential of about 25%.
