ULTA Stock Study (10-18-23)
Posted by Mark on January 17, 2024 at 06:15 | Last modified: October 18, 2023 10:54I recently did a stock study on Ulta Beauty, Inc. (ULTA) with a closing price of $383.66. Previous studies are here and here.
M* writes:
> With roughly 1,350 stores and a partnership with Target, Ulta
> Beauty is the largest specialized beauty retailer in the U.S.
> The firm offers makeup (42% of 2022 sales), fragrances, skin
> care, and hair care products (21% of 2022 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. Ulta was founded in
> 1990 and is based in Bolingbrook, Illinois.
Over the past decade, this large-size company has grown sales and earnings at annualized rates of 14.7% and 18.9%. Lines are mostly up, straight, and parallel except for a sales/EPS dip in ’21 (FY ends Jan 31). PTPM leads peer and industry averages by increasing from 12.3% (’14) to 16.1% (’23) with a last-5-year mean (excluding ’21 downside outlier) of 14.0%.
Also over the past decade, ROE leads peer and industry averages by increasing from 21.8% (’14) to 62.9% (’23) with a last-5-year mean (excluding ’21 downside outlier) of 45.8%. Debt-to-Capital is less than peer and industry averages (no long-term debt) with a last-5-year mean of 40.6% (annual rentals).
Current Ratio is 1.69 and Quick Ratio is 0.38. M* rates the company “Exemplary” for Capital Allocation, and Value Line gives an A rating for Financial Strength.
With regard to sales growth:
- CNN Business projects 8.8% YOY and 6.6% per year for ’24 and ’23-’25 (based on 23 analysts).
- YF projects YOY 9.2% and 4.7% for ’24 and ’25, respectively (26 analysts).
- Zacks projects YOY 9.5% and 5.2% for ’24 and ’25, respectively (11).
- Value Line projects 6.5% annualized growth from ’23-’28.
- CFRA projects growth of 9.1% YOY and 7.1% per year for ’24 and ’23-’25, respectively.
- M* provides a 2-year ACE of 6.8% and projects 10-year annualized growth of 6.0% in its analyst note.
I am forecasting conservatively below the range at 5.0%.
With regard to EPS growth:
- CNN Business projects 4.6% YOY and 5.2% per year for ’24 and ’23-’25, respectively (based on 23 analysts), along with 5-year annualized growth of 6.5%.
- MarketWatch projects annualized growth of 7.8% and 7.9% for ’23-’25 and ’23-’26, respectively (29 analysts).
- Nasdaq.com projects 7.2% and 8.3% per year for ’24-’26 and ’24-’27 [15, 4, and 1 analyst(s) for ’24, ’26, and ’27].
- Seeking Alpha projects 4-year annualized growth of 9.7%.
- YF projects YOY 5.8% and 6.3% for ’24 and ’25, respectively (28), along with 5-year annualized growth of 6.2%.
- Zacks projects YOY 5.7% and 6.9% for ’24 and ’25, respectively (15) along with 5-year annualized growth of 8.9%.
- Value Line projects 5.9% per year from ’23-’28.
- CFRA projects 5.6% YOY and 6.3% per year for ’24 and ’23-’25, respectively, along with a 3-year CAGR of 15.0%.
- M* projects long-term annualized growth of 9.6%.
I am forecasting below the long-term-estimate range (mean of six: 7.8%) at 5.0%. I will use ’23 EPS of $24.01/share as the initial value rather than 2024 Q2 EPS of $24.92 (annualized).
My Forecast High P/E is 21.0. Over the past decade, high P/E falls from 42.1 (’14) to 21.4 (’23) with a last-5-year mean of 26.2 (excluding 99.8 upside outlier in ’21). The last-5-year-mean average P/E is 21.3. My forecast is below the range.
My Forecast Low P/E is 12.5. Over the past decade, low P/E falls from 23.0 (’14) to 13.8 (’23). The last-5-year mean (excluding 39.9 upside outlier in ’21) is 16.3. My forecast is below the range.
My Low Stock Price Forecast (LSPF) of $300.10 is default based on $24.01/share initial value. This is 21.8% less than the last closing price, 19.7% less than the 52-week low, and 9.3% less than the 2022 low.
These inputs land ULTA in the BUY zone with a U/D ratio of 3.1. Total Annualized Return (TAR) is 10.9%.
PAR (using Forecast Average—not High—P/E) of 6.0% is less than I seek for a large-size company. If a healthy margin of safety (MOS) anchors this study, then I can proceed based on TAR instead.
To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on 389 studies (my study and 73 outliers excluded) over the past 90 days, averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, and Forecast Low P/E are 8.5%, 9.1%, 26.0, and 17.0, respectively. I am lower across the board. Value Line’s projected average annual P/E of 21.0 is lower than MS (21.5) and higher than mine (16.8).
MS high / low EPS are $37.81 / $19.91 vs. my $30.64 / $24.01 (per share). 55 MS studies have low EPS under $10/share, which I think is unreasonably low. This (14.1% of sample) contributes to the $19.91 (vs. my $24.01). With regard to high EPS, Value Line projects $32.00/share. I am lowest of the three.
MS LSPF of $306.30 implies a Forecast Low P/E of 15.4: less than the above-stated 17.0. MS LSPF is 9.5% less than the default $19.91/share * 17.0 = $338.47, which results in more conservative zoning. MS LSPF is still 2.1% greater than mine.
My TAR (over 15.0% preferred) is much less than the MS 18.4%. MOS seems robust in the current study.
I track a few different [usually conflicting] valuation metrics. PEG is 1.7 and 2.9 per Zacks and my projected P/E, respectively: the latter significantly overvalued. Relative Value [(current P/E) / 5-year-mean average P/E] per M* is cheap at 0.72. Kim Butcher’s “quick and dirty DCF” prices the stock at 17.0 * [$38.50 – ($0.00 + $10.96)] = $468.18, which suggests the stock to be 18.1% undervalued [3.6% CapEx (M*) of $14B (Value Line) / 46M shares (Value Line) = $10.96/share].
ULTA is a BUY under $386. With a forecast high price near $644, TAR should meet my 15% criterion around $322/share.
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