Jefferies remains positive on Estee Lauder’s Tom Ford deal

By Sam Boughedda

Estee Lauder ‘s (NYSE:) price target has been raised to $270 from $230 at Jefferies on Friday following the announcement of the Tom Ford acquisition.

The more than $2 billion acquisition is expected to close in the first half of next year.

Jefferies analysts maintained a Buy rating on Estee Lauder, telling investors the firm remains positive on the deal as they view little to no risk given EL has been operating TF Beauty since 2006.

“The greatest upside from the opportunity is the expansion of the beauty biz both online & into other categories, along with royalties from fashion & eyewear,” wrote the analysts. “The Tom Ford fashion brand generated $220M in 2021 and we estimate eyewear generates ~$250M a year. Assuming both have a 7% royalty rate, EL would record ~$35M in royalty revenue that drops down to EBIT.”

In addition, they said the relaxed Covid rules in China are also a reason for the firm’s positivity on the stock.

“EL’s current FY guidance embeds a gradual improvement in Mainland China throughout FY23 from -MSD in the Sept Qtr and the return of Travel retail in FY24. Travel Retail is the most profitable channel for beauty at ~40% OM% and China is the most profitable region at ~20% OM%. A faster than expected recovery should lead to meaningful earnings upside in the coming quarters,” said the analysts.

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