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As we move into the second half of 2024, investors are keenly eyeing the beauty sector, particularly the stocks of e.l.f. Beauty Inc (NYSE: ELF) and Estée Lauder Companies Inc (NYSE: EL). 

While e.l.f. Beauty has seen a 20% increase in its stock value this year, Estée Lauder has struggled, with its stock down 35%. 

Analysts, however, see more potential in e.l.f. Beauty for the coming year.

e.l.f. Beauty’s upward momentum

Baird analyst Mark Altschwager recently upgraded e.l.f. Beauty to “outperform” in his research note, setting a price target of $230, which suggests a potential 35% upside. 

Altschwager attributes his bullish outlook to the brand’s strong momentum, expecting it to gain more market share in the future. 

Key factors include favorable Q1 checks, expansion in distribution, and opportunities for international growth.

Altschwager believes that e.l.f. Beauty can maintain its premium earnings growth despite a volatile consumer market. 

He also anticipates that the company will leverage its pricing power to counteract higher tariffs, especially if there is a potential Trump win in the 2024 U.S. elections. 

Furthermore, the recent decline in e.l.f. Beauty’s stock presents a buying opportunity for quality investors. 

However, it’s important to note that e.l.f. Beauty does not currently offer dividends, making it less attractive for income-focused investors.

Challenges facing Estée Lauder

On the other hand, Raymond James analyst Olivia Tong has downgraded Estée Lauder from “strong buy” to “market perform,” citing slower recovery in China and rising competition in the U.S. Tong’s downgrade followed disappointing sales during the June 18th shopping event in China. 

As a result, she now projects a 5% increase in FY25 sales with an adjusted EPS of $3.90, down from her previous forecast of 7% growth and $4.15 per share.

Tong warned that a slower sales rebound might necessitate increased brand support or higher promotions, potentially harming margin recovery and brand image.

Despite these challenges, Estée Lauder remains a significant player, paying a dividend yield of 2.64%.

Looking ahead

Estée Lauder is set to report its financial results for the second quarter on August 19th, with a consensus expectation of earning 26 cents per share, compared to 7 cents per share a year ago. While the company faces hurdles, its upcoming financial results could provide further insights into its recovery trajectory.

While e.l.f. Beauty appears to be the favored choice for 2024 due to its growth potential and strong market position, Estée Lauder’s established brand and dividend yield offer a different appeal. Investors should weigh these factors carefully to determine which stock aligns best with their investment strategy.

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