Analyst Note| David Swartz |
Continuing its hot streak, narrow-moat Ulta Beauty soared past our sales and profit expectations in 2022’s third quarter. Moreover, despite concerns that consumer spending is slowing as a result of inflation, the company reports that the holiday season is off to a good start, and it sees no evidence of trading down to less expensive products. Indeed, it guided to 6%-8% same-store sales growth in the fourth quarter, above our 3% estimate. Thus, we expect to lift our $339 fair value estimate by a mid-single-digit percentage. However, although we view Ulta as a very strong retailer and forecast rising earnings through this decade, we view its shares, trading near all-time highs, as overvalued.