-- Estee Lauder's (EL) turnaround of its base business is progressing well and the company is seeing sufficient improvement in its organic sales growth to confirm the high end of its previous full-year sales range, Morgan Stanley said in a note emailed Monday with a review of the company's fiscal Q3 results.
Also, the company's Q3 earnings per share upside backed an increase in its 2026 guidance, as well as a strong early 2027 outlook, even amid the pressure caused by the conflict in Iran, the note said.
Morgan Stanley said, however, Estee Lauder's assumption that the prestige beauty business will accelerate in 2027 may be optimistic, adding the company was "incentivized to put its best foot forward ahead of potential equity in a Puig deal."
There are some questions on "whether the execution/cultural risk of a large acquisition is worth the opportunity cost [versus Estee Lauder's] base business turnaround despite sizeable potential EPS accretion," the note said.
The investment firm noted Puig is a complex target due to its big size, fragmented brand/geographic exposure, and the cultural risk of combining family-run companies.
"We remain on the sidelines here, waiting to see how strategic discussions play out, and looking for more confidence in sustained" Estee Lauder organic sales growth, the note said.
Morgan Stanley kept its equal-weight rating on Estee Lauder and increased the company's price target to $90 from $85.
Price: $82.07, Change: $+2.77, Percent Change: +3.49%