Goldman Sachs Reinstates Estée Lauder Buy Rating, Bullish on Profit Recovery and Market Share Revival
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Goldman Sachs Reinstates Estée Lauder Buy Rating, Bullish on Profit Recovery and Market Share Revival
Goldman Sachs believes Estée Lauder has achieved positive revenue and margin expansion under new management strategic execution, forecasts high growth in EBITDA and EPS over the next two years, reinstating Buy Rating.
- Reinstates Buy Rating: Based on underlying business improvement and strong future growth momentum.
- Performance Turnaround: FY26 revenue ends three consecutive declines turning into growth, operating margin expanded 300bps YoY.
- High Growth Expectation: Forecasts CY25-27 EBITDA CAGR of 18%, EPS CAGR of 40%.
- China Market Warmth: Benefiting from multi-brand balanced growth and market stability, expects Mainland China to recover with mid-single-digit growth.
- Channel Optimization: Reducing reliance on travel retail (share dropped to 15%), focusing on e-commerce channels like Amazon, TikTok.
- Valuation Attractiveness: Current forward PE below 5-year average, and valuation discount relative to L'Oréal.
Report interpretation
Overview
Goldman Sachs released a research report, officially reinstating the "Buy" rating on Estée Lauder (EL.US). The report points out that after several years of execution challenges and performance decline, Estée Lauder's fundamentals have significantly improved under the promotion of the new leadership team, "Beauty Reimagined" strategic vision, and "One ELC" operating model. As of now in FY26 fiscal year, company revenue returned to a growth track, operating margin expanded significantly YoY. Although the previous merger negotiation termination with Puig triggered concerns among some investors about independent growth capability, Goldman Sachs believes the company's advantages in the premium beauty field, innovation acceleration, and market share revival in key markets (such as China), are sufficient to support its strong earnings growth momentum for the coming years.
Core views
Core View 1: Performance Inflection Point Established, Huge Profit Growth Potential. Estée Lauder achieved YoY revenue growth in FY26, ending three consecutive years of decline; meanwhile, operating margin expanded 300 bps YoY, reversing the cumulative contraction trend of 950 bps between FY19-25. Goldman Sachs forecasts that, benefiting from sustained revenue momentum and cost savings from PRGP (Profit Restoration and Growth Plan), the company's EBITDA CAGR during CY25-27 will reach 18%, and EPS CAGR will be as high as 40%, far exceeding competitor L'Oréal's expected 7% and 8% during the same period. Core View 2: China Market Stabilizes and Recovers, Multi-brand Strategy Proves Effective. Mainland China market accounts for 19% of Estée Lauder's FY25 sales, remaining a key growth engine. With stabilization of real estate market in first-tier cities and improvement in consumer confidence, Estée Lauder achieved market share increase in 7 out of the past 8 quarters in China. Besides core brands Estée Lauder and La Mer, Tom Ford, Jo Malone, and Le Labo also showed strong double-digit growth. The company is promoting localization innovation targeting Chinese consumers through Shanghai R&D center, expecting Mainland China market to recover with organic growth of mid-single digits. Core View 3: Channel Structure Optimization, Reducing Volatility and Capturing New Traffic. Estée Lauder successfully reduced travel retail business share from peak of 29% to 15% in FY25, close to industry average, thereby reducing impact of this channel volatility on overall performance. In developed markets, company is actively shifting from department stores to professional multi-channel retailers and e-commerce platforms. By launching multiple brands (such as Clinique, MAC) on Amazon (US and 10 global markets) and TikTok Shop, Estée Lauder regained US market share growth in second half of 2025. Additionally, company optimized DTC experience through collaboration with Shopify, further improving user retention rate. Core View 4: Valuation Has Attractiveness, Room for Repair Relative to L'Oréal. Due to past execution issues, Estée Lauder's valuation has long been lower than L'Oréal (CY27 expected PE discount approx 9%, EV/EBITDA discount approx 38%). However, considering Estée Lauder's higher future profit growth potential and current NTM PE below 5-year average status, Goldman Sachs believes its stock price is attractive, valuation is expected to repair as performance materializes.
Analysis framework
Goldman Sachs' analytical approach mainly revolves around 'Fundamental Turnaround Verification' and 'Relative Value Comparison'. First, by breaking down changes in revenue and margins, confirm whether the company has truly exited the previous low period, focusing on the actual implementation effect of new strategies (such as accelerating innovation, channel diversification). Second, deeply analyze structural changes in key regions (especially China) and key channels (Travel Retail vs E-commerce), evaluating sustainability of growth and anti-risk ability. Finally, conduct horizontal comparison between Estée Lauder and industry benchmark L'Oréal, not only comparing past performance, but focusing more on growth expectation gap over next few years, thereby arguing rationality of current valuation discount and future repair space.
Methodology notes
Long-term growth advantage and brand power of premium beauty categories
The research report points out that Premium Beauty is a quality track with long-term mid-single-digit growth potential. Estée Lauder, relying on its powerful brand portfolio in skincare and makeup, built competitive advantage relative to mass FMCG enterprises, which is the foundation of its long-term growth.
Impact of Channel Changes on Brand Sales
The research report analyzed the trend of consumer shopping habits shifting from department stores to e-commerce (Amazon, TikTok) and professional chain stores (Sephora), and how Estée Lauder adapted to this change by adjusting channel layout to regain market share.
Margin Expansion Brought by PRGP Plan
By implementing Profit Restoration and Growth Plan (PRGP), while revenue resumed growth, the company achieved operating leverage effect by cutting costs and optimizing staff structure (reducing 9000-10000 employees), pushing operating margin back from low point to high teens percent level.
Asset mapping & comparison
Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).
- Estée Lauder (EL.US)Direct beneficiary target, Goldman Sachs reinstated Buy Rating, bullish on its profit recovery and market share revival.
- Strengths
- Powerful premium beauty brand portfolio; China market share recovering; Successful e-commerce channel transformation; Clear profit margin expansion path.
- Weaknesses
- Poor execution record in past few years; Still valuation discount relative to L'Oréal; Some brands (like MAC) NPS score lower than peers.
- Comparison
- Compared to L'Oréal, Estée Lauder had large performance fluctuations in past few years, but future two years profit growth expectation is higher (EPS CAGR 40% vs 8%), valuation more elastic.
- Risks
- China consumption recovery falling short of expectations; Intensifying e-commerce channel competition; Geopolitical risks such as Middle East affecting travel retail.
Key data
- FY26 Operating Margin Change+300bps (YoY)Reversed the cumulative -950bps contraction trend during FY19-25
- CY25-27 EBITDA CAGR Forecast18%Far higher than L'Oréal's 7% during the same period
- CY25-27 EPS CAGR Forecast40%Far higher than L'Oréal's 8% during the same period
- Travel Retail Sales Share15% (FY25)Significantly decreased from FY21 peak of 29%, reducing business volatility
- Mainland China Sales Share19% (FY25)Key growth market, market share increased in 7 out of past 8 quarters
- PRGP Net Savings Target$10-12 billion (Annual)Increased from previous $8-10 billion, accompanied by layoff plan of 9000-10000 people
Impact & implications
For Estée Lauder, reinstating Buy Rating means institutional confidence reconstruction on its independent execution capability and long-term growth story. For investors, focus should shift from past 'avoiding mines' to 'capturing recovery dividends', especially its market share revival in China and successful expansion in emerging e-commerce channels. For the industry, Estée Lauder's channel transformation (heavy e-commerce, light department store/travel retail) may become a case for other traditional beauty giants to emulate. Meanwhile, if the valuation gap with L'Oréal does not narrow as performance materializes, it may trigger further M&A speculation or asset revaluation.
Risks
- China macro economy and consumer confidence recovery slower than expected, affecting premium beauty demand.
- Geopolitical conflicts (such as Middle East situation) may cause new shocks to travel retail business.
- Intensifying market competition, especially pressure from local brands and international giants like L'Oréal, may lead to further loss of market share.
- Company executing new strategy (such as accelerating innovation, channel transformation) effect falling short of expectations, unable to maintain growth momentum.
What to watch
- Organic sales growth rate and market share change trend of Mainland China market.
- Sales contribution and market share gain of emerging e-commerce channels such as Amazon, TikTok.
- Follow-up savings implementation status of PRGP plan and continuous expansion progress of operating margin.
- Product innovation speed and market response of new leadership team under 'Beauty Reimagined' strategy.