Oppenheimer analyst Rupesh Parikh has reiterated an “Outperform” rating on Ulta Beauty Inc (NASDAQ:ULTA) shares, with a price target of $540. The company is set to announce its second-quarter FY23 earnings on August 24.
After reviewing recent data points, Parikh remains optimistic about the beauty industry, particularly the mass category, which continues to show strength. However, Ulta still faces challenges in the hair category, with difficulties in the Olaplex lap and hair tools that could limit comparable sales growth.
Consensus estimates for Q2 predict a 6.3% increase in comparable sales and earnings per share of $5.83, which Parikh believes are achievable. However, he notes that there may be slightly more promotional activity compared to the previous year.
Ulta shares are currently trading at historically low levels, with a price-to-earnings ratio of 17.4x NTM consensus estimates. This presents an attractive entry point for long-term investors.
Parikh will be closely monitoring the impact of student loans on the beauty category, increased promotional intensity year-over-year, and the addition of prestige brands on Amazon.com Inc (NASDAQ:AMZN), particularly with L’Oreal Co (OTC:LRLCY) becoming more aggressive on the platform.
Regarding guidance, Parikh expects Ulta to maintain its FY23 guidance, even with potential upside in Q2. The analyst acknowledges the uncertainty in the second half of the year due to the pending restart of student loans and the conservative nature of Ulta’s management team.
As of Tuesday’s check, Ulta shares were trading lower by 4.03% at $429.88.