Estee Lauder Companies Inc Valuation – February 2018 $EL

Company Profile (obtained from Marketwatch): Estee Lauder Cos., Inc. engages in the manufacture and marketing of skin care, makeup, fragrance, and hair care products. It sells products under the following brand names: Estée Lauder, Clinique, Aramis, Prescriptives, Lab Series, Origins, MAC, Bobbi Brown, La Mer, Aveda, Jo Malone London, Bumble and bumble, Darphin, GoodSkin Labs, Ojon, Smashbox, Osiao, Le Labo, RODIN olio lusso, Editions de Parfums Frédéric Malle, GLAMGLOW, and By Kilian. The company was founded by Estée Lauder and Joseph Lauder in 1946 and is headquartered in New York, NY.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of EL – February 2018

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $51,472,187,119 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.76 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 166.38% Pass
6. Moderate PEmg Ratio PEmg < 20 45.80 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 11.52 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.76 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 1.31 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass


Stage 2: Determination of Intrinsic Value

EPSmg $3.05
MG Growth Estimate 3.68%
MG Value $48.38
Opinion Overvalued
MG Grade C-
MG Value based on 3% Growth $44.25
MG Value based on 0% Growth $25.94
Market Implied Growth Rate 18.65%
Current Price $139.78
% of Intrinsic Value 288.94%

Estee Lauder Companies Inc is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, high PEmg and PB ratios. The Enterprising Investor is only concerned with the level of debt relative to the net current assets. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Overvalued after growing its EPSmg (normalized earnings) from $2.45 in 2014 to an estimated $3.05 for 2018. This level of demonstrated earnings growth does not support the market’s implied estimate of 18.65% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into Estee Lauder Companies Inc revealed the company was trading above its Graham Number of $28.16. The company pays a dividend of $1.32 per share, for a yield of 0.9% Its PEmg (price over earnings per share – ModernGraham) was 45.8, which was above the industry average of 28.39. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-5.49.

Estee Lauder Companies Inc receives an average overall rating in the ModernGraham grading system, scoring a C-.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$5.49
Graham Number $28.16
PEmg 45.80
Current Ratio 1.76
PB Ratio 11.52
Current Dividend $1.32
Dividend Yield 0.94%
Number of Consecutive Years of Dividend Growth 3

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Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2017
Total Current Assets $5,975,000,000
Total Current Liabilities $3,403,000,000
Long-Term Debt $3,374,000,000
Total Assets $12,604,000,000
Intangible Assets $3,228,000,000
Total Liabilities $8,039,000,000
Shares Outstanding (Diluted Average) 376,100,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $2.96
Jun2017 $3.35
Jun2016 $2.96
Jun2015 $2.82
Jun2014 $3.06
Jun2013 $2.58
Jun2012 $2.16
Jun2011 $1.74
Jun2010 $1.19
Jun2009 $0.55
Jun2008 $1.20
Jun2007 $1.08
Jun2006 $0.56
Jun2005 $0.89
Jun2004 $0.74
Jun2003 $0.63
Jun2002 $0.35
Jun2001 $0.58
Jun2000 $0.60
Jun1999 $0.52
Jun1998 $0.45

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $3.05
Jun2017 $3.05
Jun2016 $2.84
Jun2015 $2.68
Jun2014 $2.45
Jun2013 $1.98
Jun2012 $1.58
Jun2011 $1.24
Jun2010 $0.96
Jun2009 $0.85
Jun2008 $0.97
Jun2007 $0.83
Jun2006 $0.68
Jun2005 $0.71
Jun2004 $0.60
Jun2003 $0.53
Jun2002 $0.49

Recommended Reading:

Other ModernGraham posts about the company

10 Best Stocks For Value Investors This Week – 10/31/15
The Estee Lauder Company Valuation – October 2015 Update $EL
The 8 Best Stocks For Value Investors This Week – 8/8/15
Estee Lauder Companies Analysis – August 2015 Update $EL
Estee Lauder Companies Quarterly Valuation – April 2015 $EL

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The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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