Ulta Beauty Inc (NASDAQ: ULTA) remains a highly debated stock, and Goldman Sachs is ready to pick a side in the bull versus bear debate after initiating at Neutral last October.
The Ulta Analyst
Kate McShane upgraded Ulta Beauty from Neutral to Buy with a price target lifted from $285 to $307.
The Ulta Thesis
One of the key questions Ulta investors continue to debate is if the recent slowdown in its business is cyclical or structural, McShane wrote in the note. Industry experts suggest the slowdown is cyclical in nature and in line with what Ulta's management team has said. Data from NPD suggests there is a shift between prestige makeup and skincare every four to five years. This implies Ulta could see a rebound between 2020 and 2022 after a slowdown started showing signs in makeup in 2017.
Meanwhile, Ulta's operating margins should remain steady even if top-line growth continues to slow down, the analyst wrote. The company needs to generate a 3% comp to leverage the fixed cost component of its cost of goods sold. But even if same-store sales dip below 3%, management has already hinted it has levers to pull to ease SG&A.
Finally, Ulta's stock looks attractive at current levels and if the relative P/E multiple returns back to its one-year average, it implies a valuation of $319.
(NASDAQ: ULTA) Price Action
Shares of Ulta Beauty were trading lower by 3.36% at $277.63.