There’s been a notable change in appetite for Ulta Beauty, Inc. (NASDAQ:ULTA) shares in the week since its yearly report, with the stock down 12% to US$207. It was a credible result overall, with revenues of US$7.4b and statutory earnings per share of US$12.15 both in line with analyst estimates, showing that Ulta Beauty is executing in line with expectations. Analysts typically update their forecasts at each earnings report, and we can judge from their estimates whether their view of the company has changed or if there are any new concerns to be aware of. We thought readers would find it interesting to see analysts’ latest (statutory) post-earnings forecasts for next year.
Taking into account the latest results, the most recent consensus for Ulta Beauty from 23 analysts is for revenues of US$7.96b in 2021, which is an okay 7.5% increase on its sales over the past 12 months. Statutory earnings per share are expected to accumulate 4.3% to US$12.73. In the lead-up to this report, analysts had been modelling revenues of US$8.01b and earnings per share (EPS) of US$13.11 in 2021. So it looks like there’s been a small decline in overall sentiment after the recent results – there’s been no major change to revenue estimates, but analysts did make a minor downgrade to their earnings per share forecasts.
It might be a surprise to learn that the consensus price target fell 10% to US$256, with analysts clearly linking lower forecast earnings to the performance of the stock price. It could also be instructive to look at the range of analyst estimates, to evaluate how different the outlier opinions are from the mean. There are some variant perceptions on Ulta Beauty, with the most bullish analyst valuing it at US$315 and the most bearish at US$200 per share. Analysts definitely have varying views on the business, but the spread of estimates is not wide enough in our view to suggest that extreme outcomes could await Ulta Beauty shareholders.
It can also be useful to step back and take a broader view of how analyst forecasts compare to Ulta Beauty’s performance in recent years. It’s pretty clear that analysts expect Ulta Beauty’s revenue growth will slow down substantially, with revenues next year expected to grow 7.5%, compared to a historical growth rate of 17% over the past five years. By way of comparison, other companies in this market with analyst coverage, are forecast to grow their revenue at 5.2% next year. Even after the forecast slowdown in growth, it seems obvious that analysts still thinkUlta Beauty will grow faster than the wider market.
The Bottom Line
The biggest concern with the new estimates is that analysts have reduced their earnings per share estimates, suggesting business headwinds could lay ahead for Ulta Beauty. Happily, there were no major changes to revenue forecasts, with analysts still expecting the business to grow faster than the wider market. Analysts also downgraded their price target, suggesting that the latest news has led analysts to become more pessimistic about the intrinsic value of the business.
With that said, the long-term trajectory of the company’s earnings is a lot more important than next year. We have estimates – from multiple Ulta Beauty analysts – going out to 2024, and you can see them free on our platform here.
If you spot an error that warrants correction, please contact the editor at email@example.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.
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