Ulta Salon (ULTA) Surges After Strong Second Quarter Earnings and Solid Guidance

Shares of cosmetics superstore Ulta Salon Cosmetics & Fragrance (ULTA) surged 17% last week, after the company announced an update to its third quarter earnings guidance. The company announced that its earnings would come in between $0.71 to $0.74 per share, still lower than the Thomson Reuters consensus estimate of $0.76, but its revenue guidance of $613 million to $623 million was in line with the $618.7 million that analysts had expected.

This revised guidance came after robust second quarter earnings in which both earnings and revenue topped Wall Street expectations. Daily Chart
Last quarter, Ulta Salon earned $0.70 per share, topping the consensus estimate by three cents per share, and a 30% year-on-year jump from the prior quarter's results. Revenue surged 24.8% to $601 million, also topping the $588.37 million that analysts had expected. Ulta's business model is unique in that it offers salon services in its cosmetics superstores. Therefore, the two halves of the business are mutually dependent on each other and have helped the company report double-digit top and bottom line growth. As such, Ulta occupies a unique niche market with only partial competition from superstores like Wal-Mart (WMT) or specialty retailers like Sally Beauty Holdings (SBH). Ulta also produces its own cosmetics and skincare products, which promote brand loyalty and generate more return visits to its salon superstores. Analysts are fairly divided on Ulta's growth potential. Analysts at Citigroup have a "buy" rating on the stock with a $125 price target. Analysts at Goldman Sachs are less optimistic, with a neutral rating at a $100 price target. On a similar note, Jefferies Group has a "buy" rating as well, and raised its price target to $110 -- lower than the stock's price at the time of this writing. Shares have had a bumpy ride this year following CEO Chuck Rubin's resignation in February. Rubin was replaced by current CEO Mary Dillon. The main concern about Ulta is its lofty valuation. The stock trades at 40 times trailing earnings and has already climbed more than 700% over the past five years. Its forward P/E of 28 isn't that much cheaper, but its 5-year PEG ratio of 1.5 suggests that the stock will continue rising, albeit at a slower rate than the past few years. Other News About ULTA Why Ulta Salon Shares Looked Stunning Today Ulta Salon posts strong gains, but can it keep this up? Ulta Shines Under New CEO Is the company's new CEO instrumental in the company's recent success? Other Stocks in the News Can This Tech Giant Cross Over From Smartphones Into Health Care? Is Samsung about to diversify away from electronics into healthcare? Will This Trio of Tech Giants Revolutionize Medical Education? Can these companies help improve medical education in the United States? Copyright 2013 by InvestorGuide.com, Inc. InvestorGuide has no control over the sites we link to, is not affiliated with these sites, and cannot take responsibility for their quality or suitability. The news, analysis, commentary and profile information is not meant to be comprehensive, and the data provided is not guaranteed to be accurate. WebFinance Inc., the publisher of this newsletter, is not a registered investment advisor or a broker/dealer. This is not a stock recommendation newsletter but rather a source for investment ideas, and we encourage you to fully research any company before considering investing. The opinions expressed herein are those of the author and do not necessarily represent the views of nor are they endorsed by WebFinance Inc. No employee of WebFinance has owned or currently owns any shares in the company described above. The above is neither an offer nor solicitation to buy or sell any securities. The trading of securities may not be suitable for all potential readers of this newsletter, and the purchase of stocks mentioned in this newsletter may result in the loss of some or all of any investment made. We recommend that you consult a stockbroker or financial advisor before buying or selling securities or making investment decisions. We are not responsible for claims made by advertisers and sponsors. Anyone who makes decisions based on what they read here does so at their own risk and cannot hold WebFinance Inc. (DBA InvestorGuide.com, Inc.) or its employees responsible.

Published on Sep 20, 2013
By Leo Sun
Leo Sun
Leo Sun is a freelance finance writer and position trader. He focuses on a combination of value and momentum investing, with a strong interest in the trading philosophies of Warren Buffett and Peter Lynch. Leo also has experience writing articles to help small business owners acquire loans and manage their finances. He regularly contributes to the Stock of the Day analysis.

Copyrighted 2020. Content published with author's permission.

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