ULTA Stock Study (2-11-23)

I recently* did a stock study on Ulta Beauty, Inc. (ULTA) with a closing price of $515.75.

M* writes:

     > With roughly 1,350 stores and a partnership with narrow-moat
     > Target, Ulta Beauty is the largest specialized beauty retailer
     > in the U.S. The firm offers makeup (43% of 2021 sales),
     > fragrances, skin care, and hair care products (20% of 2021
     > sales), and bath and body items. Ulta offers private-label
     > products and merchandise from more than 500 vendors. It also
     > offers salon services, including hair, makeup, skin, and brow
     > services, in all stores. Most Ulta stores are approximately
     > 10,000 square feet and are in suburban strip centers.

This medium-sized company has grown sales and earnings at annualized rates of 15.7% and 16.6% over the last 10 years, respectively. The stock price has hardly seen a reprieve. Lines are mostly up, straight, and parallel except for an EPS decline in ’20. PTPM over the last decade has increased from 12.6% to 15% with a last-5-year average (excluding ’20, which was a downside outlier) of 13.3%. This is higher than BBWI (a peer) and industry averages.

ROE has increased from 24.2% to 47.3% over the last 10 years with a last-5-year average (excluding ’20) of 38.5%. This outpaces BBWI and industry averages. Debt-to-Capital was 0% until 2019 and has averaged 51.3% over the last three years (lower than BBWI and industry averages). This is all uncapitalized leases as the company has zero long-term debt.

I assume long-term annualized sales growth of 7% based on the following:

• CNN Business projects 16.3% YOY and 11.5% per year for ’22 and ’21-’23, respectively (based on 24 analysts).
• YF projects YOY 15.7% and 7.3% for ’23 and ’24, respectively (28 analysts).
• Zacks projects YOY 15.8% and 7.8% for ’23 and ’24, respectively (10).
• Value Line projects 4.4% annualized growth from ’21-’26 (12.5% from ’20-’26).
• CFRA projects growth of 15.6% YOY and 10.1% per year for ’23 and ’22-’24, respectively.
• M* provides a 2-year ACE of 12.1% and a 10-year estimate of 7.5% (analyst note).

I assume long-term annualized EPS growth of 8% based on the following:

• CNN Business projects 28.2% YOY and 16.3% per year for ’22 and ’21-’23, respectively (based on 24 analysts), along with a 5-year annualized growth of 12.7%.
• MarketWatch projects annualized growth of 18.9% and 14.8% for ’22-’24 and ’22-’25, respectively (29 analysts).
• Nasdaq.com projects 7.2% and 7.9% growth per year for ’23-’25 and ’23-’26, respectively [14, 8, and 1 analyst(s)].
• Seeking Alpha projects 4-year annualized growth of 23.9%.
• YF projects YOY 27.3% and 5.6% for ’23 and ’24, respectively (30), along with 5-year annualized growth of 12%.
• Zacks projects 5.6% YOY for ’24 and a 5-year annualized growth of 13.8% (14).
• Value Line projects 8.9% annualized from ’21-’26.
• CFRA projects 26.1% YOY and 12.8% per year for ’23 and ’22-’24, respectively, along with 23% per year from ’21-’24.
• M* provides a long-term estimate of 11%.

I am projecting well below the average [of seven] long-term estimate[s] (15%).

My Forecast High P/E is 23. Over the last 10 years, high P/E has ranged from 20 (’21) to 42.1 (’13) excluding the upside outlier in ’20 (99.8). The last-5-year average is 29.6 (excluding ’20). This has been trending lower.

My Forecast Low P/E is 15. Excluding the upside outlier in ’20 (39.9), over the last 10 years low P/E has trended down from 28.4 to 15.8. The last-5-year average (excluding ’20) is 18.1.

My Low Stock Price Forecast is the default value of $341.30. The 52-week low price is $330.80, which makes this reasonable despite being 33.8% below the last closing price. The stock has been on a tear lately.

All this computes to an U/D ratio of 0.9, which makes ULTA a HOLD. The Total Annualized Return is 5.3%, and PAR (using Forecast Average, not High, P/E) is 2.6%: less than the current yield on T-Bills.

To assess margin of safety (MOS) in this study, I compare my inputs with Member Sentiment (MS). Out of 536 studies over the past 90 days (my own and eight others with projected low prices above last closing price excluded), projected sales growth, projected EPS growth, Forecast High P/E, and Forecast Low P/E average 10.7%, 10.7%, 29.5, and 20.8, respectively. My inputs are all lower. Value Line projects an average P/E of 22, which is lower than MS (25.1) and higher than mine (19).

MS has a Forecast Low Stock Price of $287.67, which is ~15% below mine. This is no surprise given that the stock has rallied ~20% over the last three months; for many studies, this was calculated when the stock was lower.

Despite a decent MOS, I await prices under $423/share to revisit ULTA.

*—Publishing in arrears as I’ve been doing one daily stock study while posting only two blogs per week.