Estée Lauder (NYSE: EL) is contemplating buying high-end luxury brand Tom Ford for a total value north of $3 billion, as per a WSJ report. The discussions are in the preliminary stage, but if done, it would mark the biggest deal for the cosmetics giant till date.
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How Does the Deal Benefit Estée Lauder?
Estée Lauder is a luxury cosmetic manufacturer and seller of makeup, skincare, fragrance, and hair care products with big brands under its umbrella, namely MAC, Clinique, La Mer, and Aveda.
Meanwhile, Tom Ford is popular for its exclusive menswear collection and also sells high-end womenswear, accessories, cosmetics, and fragrances. According to sources, there are also other potential suitors looking to gobble up this attractive luxury brand.
EL is particularly interested in Tom Ford’s beauty business, which it already has a licensing deal with. However, it may license the clothing business to others, sources said. Tom Ford has been immune to the current inflationary environment as most of its ultra-rich customers are brand-conscious. In EL’s May conference call, executives noted that a handful of Tom Ford’s brands registered double-digit sales growth due to the stickiness and command a strong demand for their brands in China.
Notably, the TipRanks Website Traffic Tool suggests that affordable luxury has proven resilient to the dynamic economic environment in the first half of 2022.
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Estée Lauder’s Target Price
The Wall Street community has a Strong Buy consensus rating on EL stock based on 15 Buys and four Holds. The average Estée Lauder price target of $304.47 implies 11.3% upside potential to current levels. Meanwhile, its stock has lost 25.8% so far this year. For now, all eyes are on Estée Lauder’s fourth quarter Fiscal 2022 results, scheduled for August 18.
Ending Thoughts
The cosmetic behemoth boasts a market cap of $97.09 billion, which is sound enough to go through the acquisition of Tom Ford. Furthermore, as per TipRanks’ Smart Score, Estée Lauder scores a “Perfect 10,” indicating that the stock is most likely to outperform the market. Bloggers are bullish on the stock, and hedge funds have increased their holdings of EL stock by 729,600 shares in the last quarter.
Remarkably, Estée Lauder is one of the few retailers surviving the current inflationary environment. Considering its moat and the added value from the Tom Ford acquisition, when it happens, investors may get a good deal for the price of one.
