On Thursday, DA Davidson maintained a Buy rating on e.l.f. Beauty (NYSE: NYSE:ELF) reduced the price target from $223.00 to $170.00.
The adjustment follows e.l.f. Beauty's report of a 40% increase in sales, surpassing the consensus by $11 million, and an upward revision of their FY25 guidance by $35 million. The company's EBITDA also exceeded consensus by $24 million, with a $7 million guidance increase due to a shift of some expenses to the third fiscal quarter from the second fiscal quarter.
e.l.f. Beauty has provided guidance for organic sales growth of 16%-20% in the second half of FY25. The firm anticipates a lower advertising and promotion (A&P) ratio compared to the previous year, which is expected to lead to significant year-over-year EBITDA growth in the fourth fiscal quarter.
Additionally, e.l.f. Beauty is set to experience a pipeline fill in the second half of FY25 due to new space at Dollar General (NYSE:DG) and expansion at Target (NYSE:TGT).
The reduction in the price target to $170.00 is based on a revised target multiple of 26 times, down from 38 times, which reflects a slowdown in the beauty category. DA Davidson has initiated FY27 estimates and based the new price target on 26 times the estimated CY26 EBITDA of $375 million.
This change in valuation comes amid e.l.f. Beauty's strategic expansions and financial performance appear to remain robust despite the adjustment in future earnings multiple expectations. The company's efforts to increase its market presence through partnerships with retailers like Dollar General and Target are notable components of its growth strategy moving forward.
In other recent news, e.l.f. Beauty reported impressive fiscal second-quarter results, significantly surpassing expectations. The company recorded an adjusted earnings per share of $0.77, a noteworthy leap from the analyst consensus estimate of $0.42. Revenue also saw a substantial increase, with a 40% YoY jump to $301.1 million, outperforming Wall Street forecasts of $289.3 million.
These recent developments were fueled by robust growth across e.l.f. Beauty's retail and e-commerce channels in the U.S. and internationally resulted in a gain of 195 basis points of market share in the U.S. during the quarter. Tarang Amin, e.l.f. Beauty's Chairman and CEO, remarked, "Q2 marked another quarter of consistent, category-leading growth."
Additionally, e.l.f. Beauty has increased its fiscal 2025 outlook, now projecting revenue of $1.315-1.335 billion, an upgrade from its previous guidance of $1.280-1.300 billion and surpassing analyst estimates of $1.3 billion.
The company also raised its adjusted EPS forecast to $3.47-$3.53, compared to the consensus of $3.51.
InvestingPro Insights
To complement DA Davidson's analysis of e.l.f. Beauty (NYSE: ELF), recent data from InvestingPro provides additional context for investors. The company's impressive revenue growth of 59.01% over the last twelve months aligns with the 40% sales increase reported in the article. This growth trajectory is further supported by an InvestingPro Tip indicating that analysts anticipate continued sales growth in the current year.
e.l.f. Beauty's gross profit margin stands at a robust 71.0%, which InvestingPro highlights as an "impressive gross profit margin." This strong profitability metric underscores the company's ability to maintain pricing power and cost efficiency, even as it expands into new retail spaces as mentioned in the article.
However, investors should note that ELF is trading at a high P/E ratio of 47.14, which InvestingPro flags as "trading at a high earnings multiple." This valuation metric may reflect the market's high growth expectations, which aligns with DA Davidson's maintained Buy rating despite the reduced price target.
For those seeking a more comprehensive analysis, InvestingPro offers 17 additional tips for e.l.f. Beauty, providing a deeper dive into the company's financial health and market position.
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