ULTA Stock Study (7-15-24)
Posted by Mark on August 31, 2024 at 07:14 | Last modified: July 15, 2024 10:45I recently did a stock study on Ulta Beauty, Inc. (ULTA, $412.94). Previous studies are here, here, and here.
M* writes:
> With 1,385 stores at the end of fiscal 2023 and a partnership with
> Target, Ulta Beauty is the largest specialized beauty retailer in
> the US. The firm offers makeup (41% of 2023 sales), fragrances,
> skin care (19% of sales), and hair care products (19% of 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 10 years, this large-size company grows sales and earnings at annualized rates of 13.5% and 19.9%. Lines are mostly up, straight, and parallel except for a sales/EPS dip in ’20 [CFRA explains FY ends Saturday closest to Jan 31 but is labeled as previous calendar year]. Value Line gives an Earnings Predictability score of 45—likely low due to COVID ’20.
Over the past decade, PTPM leads peer and industry averages by increasing from 12.7% (’14) to 15.1% (’23) with a last-5-year mean (excluding ’20 downside outlier) of 14.6%. ROE also leads peer and industry averages by increasing from 21.5% (’14) to 62.3% (’23) with a last-5-year mean (excluding ’21 downside outlier) of 52.5%. Debt-to-Capital is less than peer and industry averages (no long-term debt) with a last-5-year mean of 49.7% (seems high to me but a glance at the 2023 Consolidated Balance Sheet does not show any debt).
Current Ratio is 1.76 and Quick Ratio is 0.46. M* rates the company “Exemplary” for Capital Allocation, and Value Line gives an A rating for Financial Strength.
With regard to sales growth:
- YF projects YOY 3.1% and 5.9% for ’24 and ’25, respectively (based on 27 analysts).
- Zacks projects YOY 3.1% and 6.0% for ’24 and ’25, respectively (11 analysts).
- Value Line projects 6.7% annualized growth from ’23-’28.
- CFRA projects growth of 3.7% YOY and 5.0% per year for ’24 and ’23-’25, respectively.
- M* provides a 2-year ACE of 4.5% and projects 10-year annualized growth of 5.0% in its analyst note.
I am forecasting below the range at 3.0%.
With regard to EPS growth:
- MarketWatch projects annualized growth of 6.6% and 6.4% for ’23-’25 and ’23-’26, respectively (based on 30 analysts).
- Nasdaq.com projects 10.7% YOY and 9.7% per year for ’25 and ’24-’26 [15, 14, and 4 analyst(s) for ’24, ’25, and ’26].
- Seeking Alpha projects 4-year annualized growth of 12.2%.
- YF projects YOY 1.0% contraction and 9.9% growth for ’24 and ’25 along with 5-year annualized growth of 5.1% (28).
- Zacks projects YOY 1.0% contraction and 10.7% growth for ’24 and ’25, respectively (14), along with 5-year annualized growth of 8.9%.
- Value Line projects 6.7% annualized growth from ’23-’28.
- CFRA projects 0.3% YOY contraction and 6.6% growth per year for ’24 and ’23-’25 along with a 3-year CAGR of 13.0%.
- M* projects long-term annualized growth of 9.5%.
My 5.0% per year forecast is below the long-term-estimate range (mean of five: 8.5%). I will use 2024 Q1 EPS of $25.64/share (annualized) as the initial value rather than ’23 EPS of $26.03.
My Forecast High P/E is 21.0. Over the past decade, high P/E falls from 34.5 (’14) to 21.2 (’23) with a last-5-year mean of 24.1 (excluding 99.8 upside outlier in ’21) and a last-5-year-mean average P/E of 19.8. I am below the 10-year range.
My Forecast Low P/E is 12.5. Over the past decade, low P/E falls from 20.7 (’14) to 14.1 (’23) with a last-5-year mean (excluding 39.9 upside outlier in ’21) of 15.5. I am forecasting below the range.
My Low Stock Price Forecast (LSPF) of $320.50 is default based on initial value given above. This is 22.4% less than the last closing price and 12.9% less than the 52-week low.
These inputs land ULTA on the BUY threshold with a U/D ratio of 3.0. Total Annualized Return (TAR) is 10.7%.
PAR (using Forecast Average—not High—P/E) of 5.8% 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 230 studies (my study and 79 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 6.0%, 7.1%, 22.0, and 15.1, respectively. I am lower across the board. Value Line’s projected average annual P/E of 18.0 is lower than MS (18.6) and higher than mine (16.8).
MS high / low EPS are $36.97 / $25.45 versus my $32.72 / $25.64 (per share). My high EPS is less due to a lower growth rate. Value Line’s high EPS of $36.00 is in the middle.
MS LSPF of $340.30 implies a Forecast Low P/E of 13.4: less than the above-stated 15.1. MS LSPF is 11.5% less than the default $25.45/share * 15.1 = $384.30 resulting in more conservative zoning. MS LSPF is 6.2% greater than mine, however.
With regard to valuation, PEG is 1.8 and 3.1 per Zacks and my projected P/E, respectively: a bit high on average. Relative Value [(current P/E) / 5-year-mean average P/E] is slightly low at 0.81.
MOS is robust because my inputs (including most-recent-quarter initial value) are below respective analyst/historical ranges and MS averages. MS TAR of 15.4% is 4.7% per year greater than mine.
Per U/D, ULTA is a BUY under $412/share. BI TAR criterion is met < $344 given a forecast high price ~$687.
Disclaimer: I own shares in this security.
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