3 personal care stocks that smell like good earnings plays

Key Points

• ELF, which handily topped Wall Street EPS estimates for the first three quarters of calendar 2023, is scheduled to report on February 6th.
• Inter Parfums may deliver its third earnings beat of 2023 since the market has low expectations of $0.32 EPS, which represents a 38% decline from the prior year period.
• Last week, RBC Capital gave Kenvue stock a buy rating and $25.00 price target that would return it to where it was trading when it made its NYSE debut.

2023 was a year to forget for the personal care industry. With traders clamoring for growth-oriented technology and media shares, the defensive group became an afterthought and woefully underperformed the broad U.S. equity market. Approaching the heart of fourth quarter earnings season, this could mean personal care stocks deserve some personal attention. 

Nowadays, manufacturers of personal and beauty care products like cosmetics and perfumes rely heavily on influencer recommendations and TikTok trends for marketing. Makeup, hair care and skin care purchases are often driven by social media buzz. But in 2024, a different kind of technology may drive consumer behavior.

Yes, it’s none other than artificial intelligence (AI). 

Like plenty of other industries, AI is expected to transform the beauty products space through personalized product and service recommendations. The so-called ‘beaut-AI’ movement is already driving product development worldwide. According to Mckinsey, ongoing digital advancements will be largely responsible for the global beauty market growing to $580 billion by 2027.

What does this have to do with 2023 fourth quarter earnings reports? In the coming weeks, management remarks about how they plan to use technology to drive growth could matter just as much as near-term financial results. With investors scouring earnings call transcripts and presentations for AI-related buzzwords of late, companies that tout digital initiatives could see their stocks ‘glow up’ more than others. 

Here are a few names to keep an eye on.       

When does $ELF report earnings? 

e.l.f. Beauty, Inc. NYSE: ELF is scheduled to announce fiscal 2024 third quarter earnings after the market close on February 6. The vegan and cruelty-free makeup company has been anything but cruel to investors as its stock bucked the personal care slump to reach record highs last year. ELF handily topped Wall Street earnings per share (EPS) estimates for the first three quarters of the 2023 calendar amid strong sales growth and market share gains.

Since the last quarterly update, ELF launched its first Roblox experience, ‘e.l.f. UP! tycoon’ to attract entrepreneurs and cultural influencers in the digital world. In the end, the move was designed to form deeper engagements with tech-savvy Gen Z consumers who represent the next wave of growth. The World Economic Forum’s 2023 Future of Jobs Report found that 88% of Gen Z feels that immersive spaces allow them to express themselves in the real world comfortably. Look for e.l.f. UP! to be another catalyst that pushes ELF shares up.

Will Inter Parfums beat EPS expectations?

When Inter Parfums, Inc. NASDAQ: IPAR reports fourth-quarter financials next month, the market will be expecting EPS of $0.32. Since this represents a 38% decline from the prior year period, expectations are low. It could mean that the fragrance leader delivers its third earnings beat of 2023. 

On November 8th, Inter Parfums ran as much as 6% before profit taking set in. Management had just reported in-line Q3 revenue and EPS but raised its full-year EPS guidance from $4.55 to $4.75. This represents 26% growth from 2022, a reflection of consumers’ willingness to spend on perfumes and colognes.

After climbing as high as $149.98 on the last trading day of 2023, the stock has pulled back to $136.26. When the market is reminded of IPAR’s 26% profit growth, a recovery rally could ensue. The 40-year-old company has been slow to embrace digital trends, opting to find growth through brand acquisitions and geographic expansion. Although a solid earnings beat would suffice, any mention of new tech initiatives could spark a more pronounced move.    

What does Kenvue sell?

Kenvue Inc. NYSE: KVUE is the former consumer health business of Johnson & Johnson. It sells popular personal care products such as Listerine, Visine, Aveeno and Neutrogena. The stock is down nearly 20% from its May 2023 split-off date primarily because household staples names have been out of favor. Recent growth numbers have been low (including 3% revenue growth in Q3) but not unusual for a mature, defensive company. Last week, RBC Capital gave KVUE a buy rating and $25.00 price target that would return it to where it was trading when it made its NYSE debut.

On one hand, management is unlikely to unveil any major AI plans when the company reports on February 8th. On the other hand, it does (strangely) call itself Kenvue Technologies. During the October 2023 earnings call, CFO Paul Ruh noted “leveraging digital and automation technologies” as an important productivity initiative. Mr. Ruh added that Kenvue is spending to enhance its digital capabilities, so any color on this could generate unusually high buying interest in the stock.