Is Estée Lauder on the Verge Of a Massive Comeback?

Key Points

• Estée Lauder's shares have been trading sideways since December.
• However, they have been accumulating several key analyst upgrades.
• The stock has barely eaten into the 70% selloff of recent years, but there are signs the recovery could soon begin in earnest. 

Estée Lauder Companies, Inc. NYSE: EL is among an increasingly smaller group of stocks that have yet to mount a serious comeback to recent selloffs. Having gained more than 200% from January 2019 through January 2022, investors in the cosmetics giant then gained a harsh lesson in gravity. 

Through November of last year, the company shed more than 70% of its value and was likely only saved from losing more by the broader market rally that started in response to likely interest rate cuts. But in recent months, something interesting has been happening, and it's not just the solid run of gains, 40% all told since November's low. There has actually been a seemingly endless run of analyst upgrades, and it's effectively been all one-way traffic. 

Run of Upgrades

For example, February saw less than five bullish updates, with Raymond James rating Estée Lauder a Strong Buy while Wells Fargo rated it Overweight. Then, in March, Bank of America upgraded Estée Lauder shares from a Neutral to a Buy rating, a move echoed by the Citigroup and DA Davidson teams this week. 

The refreshed price targets from these analysts have risen as high as $175, with at least three from the aforementioned list naming this as their expectation. Looking at the chart, however, you can't help but get the feeling that the stock hasn't reflected all this bullish optimism yet. 

While they've held onto much of their gains from November's run, Estée Lauder shares have effectively traded sideways since the end of December. It's funny, considering how many analysts have come out in the bull's corner in the meantime and made all the more strange by the broader market setting high after high. For context, just this week, the benchmark S&P 500 index was notching a fresh all-time high. 

Reaching an Inflection Point

This week also saw Estée Lauder hit what Citigroup called an "inflection point" in its return to growth after last year's calamitous selloff. The company's sales got hit hard by the collapse in Chinese consumer spending, a key market, and its inventories swelled as a result. But it's looking like they've managed to adopt aggressive enough tactics to clear these hurdles, while there are signs of growth returning to its key markets. 

Bank of America is bullish enough on the turnaround to say the company is on the verge of getting back to profitability, even "if China only grows by single digits," while Canaccord summed it up nicely when they said Estée Lauder stands to gain the most as it's suffered the most. 

Considering Getting Involved?

Given this, it's easy to feel like investors could be looking at a sleeping giant that is starting to reawaken. It will take a certain type of investor to get excited about the opportunity here, as Estée Lauder has significantly lagged behind its peers and the broader market. 

But perhaps that's where the real opportunity exists. It would be a different story if these analysts' upgrades hadn't materialized at the rate they have been, or if Estée Lauder shares had set even lower lows this year. But the fact is the stock has been gaining since last November, and signs continue to emerge indicating that the worst is over. 

With the 70% selloff of recent years barely starting to be eaten into, an exciting recovery play is gathering momentum. Investors should look for shares to trend up towards and close above their recent high of $160, as this would give technical confirmation that the recovery really is about to start in earnest.