BELGRADE, SERBIA - SEPTEMBER 15, 2020: Estee Lauder logo on a shelf of products of the brand. Estee Lauder is an american cosmetics and skincare brand on the luxury market. Picture of a sign with the logo of Estee Lauder and products for sale at a retailer in Belgrade. The Estee Lauder Companies Inc. is an American multinational manufacturer and marketer of prestige skincare, makeup, fragrance and hair care products, based in Midtown Manhattan, New York City.
Estee Lauder share price has bounced back in the past few days as American stocks bounce back. The stock soared to a high of $230 after the company agreed to acquire Tom Ford in a $2.3 billion. It has rallied by about 22% from the lowest level this year, giving it a market cap of over $78 billion.
Estee Lauder is one of the biggest companies in the consumer discretionary sector. The firm owns some of the best-known brands in the industry like Aveda, Bumble & bumble, Clinique, Bobbi Brown, MAC, and Too Faced among others. It generates over $17 billion in annual revenue and over $2.2 billion.
Estee Lauder’s business has been struggling, which has helped push its share price down by over 33% in the past 12 months. In the most recent quarter, the company’s organic sales dropped by 5% due to Covid-19 restrictions in China. The firm also struggled as the strong US dollar hit its foreign business. Currency translation was dilutve of net sales by 7 points.
Its fragrance business helped to offset losses in other segments a demand for Tom Ford Beauty, Jo Malone, and Le Nabo jumped.
The main catalyst for the Estee Lauder share price was its decision to buy Tom Ford in a $2.8 billion. It outcompeted Kering, the parent company of Balenciaga.
Still, some analysts are concerned about what Estee Lauder is getting from Tom Ford. For one, Estee makes most of its revenue from fragrances and personal care products. On the other hand, Tom Ford deals with luxury clothes for both men and women. As such, it is difficult to see where the synergies of the two companies will come from.
On a positive side, Estee Lauder stock price will recover once China reopens. There are signs that Beijing will reopen the country in the coming months. Another catalyst is that the Chinese yuan has rebounded by about 3% against the US dollar.
The daily chart shows that the Estee Lauder stock price has formed a break and retest pattern in the past few days. It has done that by retesting the important resistance level at $225, which was the lowest level on May 16. A break and retest pattern is usually a sign of a continuation.
The Relative Strength Index (RSI) has moved above the neutral point at 50. It has also moved slightly above the 25-day and 50-day moving averages. Therefore, I am cautiously optimistic about the stock, with the next key level to watch being at $250. A drop below the support at $210 will invalidate the bullish view.
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