Estee Lauder (EL) Implied Move Suggest Small Downside Unless Revenue Get A Boost From Retail Travel Boost!

The consensus EPS Estimate is $0.56 (-63.6% Y/Y) and the consensus Revenue Estimate is $4.24B (-8.2% Y/Y). Estee Lauder's ability reclaim its historical level of steady growth is being questioned by RBC Capital Markets in a research note.

Estee Lauder needs to modernize its brands and portfolio strategy and may need another restructuring. Their guidance seems appropriate for the current situation, but stock is likely pricing in a faster recovery to top-line than current thinking allows.

Investors should be focused to look at how Estee Lauder would benefit from travel retail recovery, but how Estee Lauder's brands adapt to the evolving beauty market should also be watched.

EL has issued earnings guidance for Q2 2024. EPS estimate in the range of 0.47 to 0.57, which would be a 66% decrease from the same period last year. Revenue Growth estimate in the range of -11.0% to -9.0%.

EL last reported earnings on 01 Nov 2023 before the market opened (BMO). EL shares declined -18.9% the day following the earnings announcement to close at 103.96. Following its earnings release, 95 days ago, EL stock has drifted +29.0% higher.

From the time it announced earnings, EL traded in a range between 103.29 and 151.19. The last price (134.12) is closer to the higher end of range.

Estimated implied straddle for upcoming earnings is 9.7%. We should be seeing another downside price effect unless we could see revenue growth coming from the retail travel, but China economy recovery is still a worry.

The options market overestimated EL stocks earnings move 58% of the time in the last 12 quarters. The predicted move after earnings announcement was ±7.0% on average vs an average of the actual earnings moves of 7.3% (in absolute terms). This shows you that EL tended to be more volatile than the options market predicted for the earnings stock price reaction.

We could be seeing a small downside from implied move unless the retail travel recovery help to boost revenue growth.

EL's last earnings implied volatility (IV30) going into earnings was 53.1. The last time EL released earnings, the implied volatility dropped to 37.4, resulting in an implied vol crush of 30%. 5 days after earnings, the 30 day IV was 32.7.

Average Implied Volatility Crush For EL Earnings: 22%

Average 30 Day Implied Volatility 1 Day Before Earnings: 39.1

Average EL 30 Day IV for the Day of Earnings: 29.9

Average 30 Day Implied Volatility 5 Days After Earnings: 29.0

EL share price has drifted up 29.0% post earnings announcement. Using the last 12 quarters data, the average drift between earnings announcements is 0.7%. The current drift represents a positive 1.4 standard deviation move.

Current post earnings announcement drift: 29.0%

Historical average post earnings announcement drift: 0.7%

Historical post earnings drift standard deviation move: ±20.7%

Estee Lauder would need to take advantage of the improvement of retail travel to boost its revenue. What would be also pressing is how they are going to innovate their brand and stayed relevant with the younger consumer group.

There have been competition in the cosmetic space, with many new players. I would be looking out for how the revenue played out from its businesses which has China market.

Appreciate if you could share your thoughts in the comment section whether you think Estee Lauder would post a positive price effect if their revenue improved from retail travel boost.

Disclaimer: The analysis and result presented does not recommend or suggest any investing in the said stock. This is purely for Analysis.