WALD: Brand Strength And Injectables Launch Will Support Future Share Rebound

Analysts have trimmed their average price target on Waldencast from about $3.08 to roughly $1.87, reflecting recent EBITDA and sales shortfalls, slower growth and higher costs. At the same time, they point to ongoing brand strength and potential upside from the Saypha injectables launch.

Analyst Commentary

Recent research shows a reset in expectations around Waldencast, with price targets moving lower but with differing views on how to weigh current execution challenges against long term brand potential and upcoming product catalysts.

Bullish Takeaways

Bullish analysts see the current valuation as conservative relative to the perceived brand strength of Obagi and Milk, suggesting the stock may not fully reflect these assets.
Investment behind the Saypha injectables launch is viewed by bullish analysts as a near term drag on EBITDA that could support future growth if the rollout gains traction.
Some bullish analysts highlight that management is still in a transition period, and they see room for better execution once the company moves beyond this phase.
Despite sales of US$72m coming in below the US$76m estimate, bullish analysts still describe brand performance as mixed rather than weak and see room for expansion over time.

Bearish Takeaways

Bearish analysts focus on recent EBITDA and sales shortfalls, which have led to lower price targets and raise questions about near term execution.
Ongoing costs tied to the SEC investigation and the company review are seen as a persistent headwind for profitability and cash generation.
Slower than expected recent growth, even after improvements in the balance sheet, leads cautious analysts to question how quickly Waldencast can translate its brands into stronger financial results.
The fact that multiple firms cut their targets, some from as high as US$4 to US$2, reinforces concerns among bearish analysts that prior expectations for the stock were too optimistic.

What's in the News

The U.S. Securities and Exchange Commission staff concluded its investigation into Waldencast related to prior financial restatements and internal control weaknesses and, based on information available at the time of notice, does not intend to recommend an enforcement action. This follows a period in which the company incurred substantial legal and advisory costs while cooperating with the review (Regulatory Agency Inquiries).
Obagi Medical, part of Waldencast, launched Sun Shield Mineral UV Barrier Protect Broad Spectrum SPF 40, a mineral sunscreen positioned to offer UV protection and skin health support, priced at US$65 and available on Obagi.com, Amazon.com, through authorized Obagi Medical providers and select retail channels (Client Announcements).
Obagi Medical announced a collaboration with ProMD Health under the Aesthetics Leadership with Obagi’s Hyaluronic Acid Program. Under this program, 17 ProMD locations will evaluate Obagi saypha MagIQ with integrated skincare protocols, gathering real world data on clinical efficacy and patient experience for the injectable platform (Client Announcements).
Obagi Medical named It’s a Secret Med Spa as a key partner in the same Aesthetics Leadership with Obagi’s Hyaluronic Acid Program. Multiple locations will collect standardized real world data on Obagi saypha MagIQ, focused on patient satisfaction, provider experience and consistent outcomes across practices (Client Announcements).

Valuation Changes

Fair Value: The model’s fair value estimate has been reduced from $3.08 to $1.87 per share, reflecting the updated assumptions.
Discount Rate: The discount rate has increased slightly from 9.61% to 10.34%, implying a higher required return for the stock.
Revenue Growth: The long-term revenue growth assumption has been adjusted modestly from 6.31% to 6.08%.
Net Profit Margin: The net profit margin assumption has increased from 4.02% to 6.19%, indicating higher expected profitability in the model.
Future P/E: The assumed future P/E multiple has been reduced from 34.54x to 16.85x, lowering the valuation placed on future earnings.

0 views

Key Takeaways

Strong growth in Milk Makeup and Obagi Medical, with store expansion and innovation driving increased future revenue and market share.
Operational efficiencies and improved cash flow enhance financial flexibility, allowing for further sales and marketing investments, boosting top-line growth.
Regulatory investigation, macroeconomic factors, and strategic execution risks challenge Waldencast's liquidity, revenue growth, and profitability, requiring careful management and optimization of strategic initiatives.

Catalysts

About Waldencast

Operates in the beauty and wellness industry in the United States, Canada, Europe, the Middle East, India, Australia, and New Zealand.What are the underlying business or industry changes driving this perspective?

Strong growth in both Milk Makeup and Obagi Medical brands, with Milk Makeup expanding into Ulta Beauty stores, leading to expected mid-teens revenue growth. This channel expansion is likely to drive increased future revenue.
Operational efficiencies and sturdy gross margins facilitated by the Waldencast flywheel effect are expected to provide room for further investments in sales and marketing, aiding top-line momentum, thus impacting future net margins positively.
Successful execution of innovation strategies, including new product launches in both the skincare and makeup segments, are likely to boost future revenue and market share.
Securing a new $205 million, 5-year credit facility extends debt maturity and enhances financial flexibility, potentially improving future earnings by reducing financial risks.
Expected improvements in cash generation following the resolution of nonrecurring regulatory expenses will enable stronger cash flow, which could be utilized for growth investments or debt reduction.

Waldencast Future Earnings and Revenue Growth

Assumptions

How have these above catalysts been quantified?

Analysts are assuming Waldencast's revenue will grow by 6.1% annually over the next 3 years.
Analysts are not forecasting that Waldencast will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate Waldencast's profit margin will increase from -84.4% to the average US Personal Products industry of 6.2% in 3 years.
If Waldencast's profit margin were to converge on the industry average, you could expect earnings to reach $20.1 million (and earnings per share of $0.15) by about May 2029, up from -$229.7 million today.
In order for the above numbers to justify the price target of the analysts, the company would need to trade at a PE ratio of 16.9x on those 2029 earnings, up from -0.5x today. This future PE is lower than the current PE for the US Personal Products industry at 22.4x.
Analysts expect the number of shares outstanding to grow by 4.59% per year for the next 3 years.
To value all of this in today's terms, we will use a discount rate of 10.34%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

Waldencast's ongoing regulatory investigation has resulted in significant cash usage for nonrecurring expenses, potentially limiting liquidity and impacting net earnings until the matter is resolved.
The macroeconomic environment and retail inventory adjustments have led to slowed market growth and could affect revenue growth, especially as competitive and consumer market conditions may change unpredictably.
The aggressive expansion into Ulta may cannibalize existing sales from Sephora, leading to dilution of revenue per outlet and potentially reducing overall profitability if not managed carefully.
There is execution risk associated with Milk Makeup's strategic plans, especially as they expand into the complexion category and seek to maintain strong brand equity through new innovation, potentially affecting profit margins if the innovations don't meet market expectations.
Significant reliance on growth strategies such as marketing investments and international expansion requires careful management of operational costs and investment returns, which, if not optimized, could lead to stagnation in EBITDA margin improvement and overall net profit growth.

Valuation

How have all the factors above been brought together to estimate a fair value?

The analysts have a consensus price target of $1.87 for Waldencast based on their expectations of its future earnings growth, profit margins and other risk factors.
However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $2.0, and the most bearish reporting a price target of just $1.6.
In order for you to agree with the analysts, you'd need to believe that by 2029, revenues will be $324.8 million, earnings will come to $20.1 million, and it would be trading on a PE ratio of 16.9x, assuming you use a discount rate of 10.3%.
Given the current share price of $0.96, the analyst price target of $1.87 is 48.5% higher.
We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.

Have other thoughts on Waldencast?

Create your own narrative on this stock, and estimate its Fair Value using our Valuator tool.

Create Narrative

How well do narratives help inform your perspective?

Disclaimer

AnalystConsensusTarget is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by AnalystConsensusTarget are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that AnalystConsensusTarget's analysis may not factor in the latest price-sensitive company announcements or qualitative material.

Expansion Into Ulta Beauty Stores Will Boost Future Success