Deutsche cuts Ulta Beauty target, sees favorable risk/reward

Deutsche Bank lowered the firm’s price target on Ulta Beauty to $448 from $552 and keeps a Buy rating on the shares. The analyst sees a favorable risk/reward at current share levels. The firm says that while it lowered Q2 and second half of 2024 same-store-sales and earnings forecasts ahead of Ulta’s upcoming earnings report on August 29, the market has “already embraced decelerating sales trends and a guidance cut is widely anticipated.” Thus, the focus will shift to the second half outlook for operating margin, as it could provide a glimpse into the upcoming investor day and what the margin profile of the business can look like under a more competitive and slower sales growth environment, the analyst tells investors in a research note. Deutsche thinks a 13% operating margin for the full year is highly likely and views the market as “overly bearish” on the profitability of Ulta Beauty. It believes a reset estimate base post earnings will provide a floor on profitability and sees a path to $25.00 in earnings per share in 2025.