Estee Lauder (EL) is up almost 25% from a year ago, and Citi sees that momentum continuing.
Citi analyst Wendy Nicholson mined Estee Lauder’s FY08 10-K and found a lot to like. Nicholson continues to recommend the stock and raises her target from $54 to $60.
In FY08, EL increased their points of distribution to over 25,000 and entered roughly 5 new markets (for a total of over 140), while the number of single-brand free standing doors increased by 14%. This expanded distribution has led to Macy’s (EL’s largest customer) dropping as a percentage of sales from 14% in FY07 to 12% in FY08.
Cash Conversion Cycle Improved:
Based on our calculation, EL’s working capital increased 48% to $805 million in 4Q08 (from $545 million), and increased 100 bps as a percentage of sales, to 8.7%. We estimate that EL’s cash conversion cycle improved (-1 day) in 4Q08 which was explained by lower average inventories (-2 days) and higher average payables (+2 days), offset by higher average receivables (+2 days).
Debt Level Increase Was Small:
EL increased their debt level 10% in FY08 to $1.2 billion, which increase falls well below the 109% increase in the year-ago period.
Citi reiterates BUY on Estee Lauder (EL), target from $54 to $60.
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