REPORT BY J.P. MORGAN LABELS LAUDER STOCK LONG-TERM BUY
NEW YORK — In another bullish research report on the outlook for The EstAe Lauder Cos., J.P. Morgan Securities, one of four underwriters of the cosmetics firm’s initial public offering, rated the stock a long-term buy.
Calling the company a “legend,”analyst Heather Hay, of Morgan, says Lauder is “well positioned to continue its recent above-average growth.
The Morgan report dated Jan. 2 follows one issued on Dec. 13 by Dillon, Read & Co., also describing Lauder as a strong growth vehicle, and it concluded that the stock would outperform the market.
Morgan’s Hay estimates that Lauder’s operating margin will grow to 13.7 percent of sales in the year ending June 30, 1997, from 11.9 percent in 1995.
Internationally, she notes that 48.9 percent of Lauder’s sales originate outside the U.S. and that international sales have been moving at an 11.4 percent annual growth rate over the past three years. She also points out that Lauder management has been successful in such difficult markets as Japan.
In addition, the report notes that Lauder controls 39.5 percent of the U.S. prestige cosmetics industry and is increasingly profitable. It is accelerating sales growth, lowering manufacturing costs and cutting selling and shipping costs through a replenishment system that manages retail inventory levels.
The company has a strong cash flow that is expected to generate $690 million in cash over the next three years. It also has a solid balance sheet, with debt representing only 20 percent of total capitalization.
The Lauder offering came Nov. 16 at $25 a share. The first trade on the New York Exchange was at 32 1/2. On Friday, the stock closed at 33 3/4, down 7/8.
Hay’s target price for the stock over the next 12 to 18 months is $38-$40.
— Fairchild News Service