Estée Lauder is finally starting to look healthier after a difficult few years. Sales are growing again, margins are improving, and cash flow has picked up. Fragrance is doing well, China is recovering, and the company’s cost-cutting programme could continue to improve profits over the next year.
**Bull case**
* The turnaround is starting to show up in the numbers, especially profits and cash flow.
* Fragrance and China are performing well.
* Cost savings could lift margins further.
* Dropping the Puig merger talks allows management to focus on fixing the business.
**Bear case**
* The shares have already risen strongly, so much of the expected recovery may already be priced in.
* The company still has significant debt.
* Growth is uneven, with weaker performance in some regions and product categories.
* Results still depend heavily on China, travel retail and management delivering on its targets.
**TL;DR**
Overall, Estée Lauder looks like a recovering business, not a cheap stock. There is room for further upside if the turnaround continues, but the valuation leaves little protection if growth slows or margins disappoint.
* Score 5.1/10
* Buy trigger: around $72
* Sell / trim trigger: around $105