by Ian Harvey
October 14, 2019
Ulta Beauty disappointed with the last earnings report sending shares from $360 to $226 in September. This is when insiders started to buy.
Does this mean that the downside move was overdone?
Stock Options Made Easy has recommended members to execute an options
trade? What is it?
Ulta Beauty Inc (NASDAQ: ULTA) has been receiving a lot of attention from insiders and hedge funds of late.
ULTA, the $15 billion brick-&-mortar phenomenon in retail cosmetics and salon services, delivered Q2 results on August 29 that didn't give investors the glow they were looking for. The stock plunged nearly 31%.
The company produced 12% revenue and 12.2% EPS growth (both lower than expected) and +6.2% comparable sales. But it was the outlook that surprised to the downside.
Besides slight misses on both the top and bottom lines, ULTA guidance was weaker than expected. Management cut their FY19 EPS view to $11.86-$12.06 from $12.83-$13.03.
This caused the stock to tumble from $360 to $226 in September. And many of the analysts were quick to downgrade the stock.
That’s when the insiders started buying.
Ulta Beauty saw a director add another 70,000 or so shares recently via an affiliate of Chanel. At prices ranging from $245.17 to $250.00 apiece, that totaled almost $17.41 million. It also followed that director's purchase of more than 173,800 shares in the previous week. A total cost worth about $87 million over a period of three days.
The Chanel group is now the sixth largest owner of Ulta, with a 3.4% stake in the cosmetics company, whose market is millennial women.
As well, Goldman Sachs initiated coverage of Ulta Beauty with a Neutral rating at the time. The shares were trading at $248.46 apiece on last look, just above the top of the latest purchase price range. The stock has changed hands as high as $368.83 a share in the past year, but the analysts' consensus price target is just $298.23.
On top of the insider buying, ULTA stock’s valuation is cheaper than peers’, further supporting its “buy” case.
ULTA stock has recovered by about 15% in the last nine trading days, making it 22% lower since the company’s earnings announcement.
Ulta Beauty’s problem is its high reliance on cosmetics, a business experiencing headwinds in North America. Management stated that its makeup segment was downtrending at the end of the second quarter. Anticipating challenges in its makeup business, Ulta Beauty reduced its fiscal 2019 revenue and earnings guidance. It is now emphasizing its in-demand skincare products to offset the weakness in its cosmetics business.
The company has lowered its fiscal 2019 revenue growth guidance to 9%–12% from its previously anticipated low double-digit percent rate. It’s reduced its EPS forecast to $11.86–$12.06 from $12.83–$13.03.
Where to now?
Analysts’ price target of $291.71 for ULTA implies a 15.3% upside based on its closing price of $248.46 Friday. However, shortly after the report analysts turned quite negative on the stock!
There is some movement to the optimistic side with analysts at BidaskClub upgrading Ulta Beauty from a “sell” rating to a “hold” rating, and Goldman Sachs Group assuming coverage at a “neutral” rating and a $276.00 price target.
Will this be adjusted further?
Will problems associated with the earnings report continue to hinder upward movement?
What can you do?
Stock Options Made Easy “Armchair Trader” members have already received a recommendation in regard to Ulta Beauty, but there is still time to join us and find out the details.
AS ALWAYS THE DECISION IS YOURS!
An Important Note: That any suggestions for options trade considerations require investors/traders to use their own discretion as to when to enter or exit! As well, it is advisable to do further research and due diligence before executing your trade.
It is sometimes best to exit a trade, if there is already sufficient profit accrued, before an earnings report is presented. GREED can be the undoing of a nice profit!