Source: Davit Kirakosyan
BofA Securities Revises Price Target for e.l.f. Beauty
In a recent development, BofA Securities has raised its price target on e.l.f. Beauty (NYSE:ELF) to $135 from $113. This has been done while maintaining a positive ‘Buy’ rating on the stock. The revision points to the promising long-term upside potential for the company, despite softer expectations for the first quarter of the fiscal year.
Reasons Behind the Revision
The revision in price target is primarily based on weaker early-quarter scanner data, which led the firm to cut its Q1 sales growth estimate from 15% to 12%. Even though the sales growth has been trimmed, it’s worth noting that a 12% growth rate still suggests a robust performance in a challenging market environment.
Moreover, BofA Securities adjusted its gross margin forecast for e.l.f. Beauty to 69% from 70%. This was due to tariff impacts, which will only be partially offset by upcoming price hikes set to take effect on August 1. This implies that while external factors such as tariffs are impacting the company’s bottom line, the company is proactive in taking measures like price hikes to mitigate these effects.
Cost and Profitability Concerns
In addition to the above, non-marketing SG&A (Selling, General and Administrative Expenses) is expected to grow faster than sales in the quarter. This is a significant factor that led the firm to revise its EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) estimate for Q1 downward, from $90 million to $69 million. Rising SG&A expenses can eat into a company’s profitability, so this is a key metric to watch in the coming quarter.
Long-Term Upside Despite Short-Term Drag
Despite these short-term challenges, BofA Securities remains positive about e.l.f.’s future trajectory. The analysts anticipate a rebound in sales growth and margin improvement beginning later this year. This optimism is fueled by the potential for higher pricing, ongoing cost efficiencies, and potential supplier concessions.
The revised price target reflects BofA’s confidence in the company’s ability to sustain its category leadership and expand profitability over the medium term. e.l.f. Beauty has a strong footprint in the beauty industry and is known for its innovative and affordable products.
Final Thoughts
The revision in price target by BofA Securities is a testament to e.l.f. Beauty’s strong market potential, despite the expected short-term headwinds. As per the revised estimates, investors can expect robust growth from this stock over the medium to long term. The company’s proactive strategies to deal with external tariff impacts and its focus on cost efficiency measures further add to its investment appeal.
However, investors should keep an eye on the non-marketing SG&A expenses and their impact on the company’s profitability. The growth of these expenses faster than sales could be a concern if it continues over the long term. But for now, the revised price target and the ‘Buy’ rating from BofA Securities paint a positive picture for e.l.f. Beauty’s stock in the upcoming quarters.