Ulta Salon, Cosmetics & Fragrance, Inc (ULTA) continues to see higher earnings revisions and continues to provide positive surprises.
Company Description
Ulta Salon is the largest beauty retailer that provides one-stop shopping for prestige, mass and salon products and salon services in the United States.
Estimates Move Higher
Ulta Salon has seen its Zacks Consensus Earnings Estimate for the coming quarter increase 5% since late November. The increase is an indication that analysts believe that the company will continue to produce higher earnings.
The company announced that it will discuss its holiday sales results on January 5, 2012, before the market opens. The company guided investors to expect 6%-8% growth for comparable stores, but some analysts are looking for growth of 9%.
Analysts are pointing to the strong growth of fragrance sales in the prior quarter as an indication that fourth quarter sales will also be strong. More new exclusive offerings from Fendi and Vera Wang were also cited as reasons for the increased expectations.
Solid History of Earnings Surprises
When a company constantly beats the Zacks Consensus Earnings Estimate, investors begin to expect it. This is the case for ULTA, a company that has not come up short since 2008 when the estimate was merely met. Importantly, while the beats are small in absolute terms, the price impact on shares has been significant in 2011.
ULTA carries a some high multiples, such as 39x trailing twelve months earnings. Compared to the industry average of 23x earnings and ULTA begins to look expensive. A significant difference to the industry can also be seen in the Price to Book ratio of 7.5x for ULTA against the 2.6x industry average.
Priced for perfection is how some might characterize ULTA. Consistent earnings surprises have helped to push the multiples to much higher levels than the industry average. These lofty metrics have not stopped analysts from continuing to like the stock and its prospects for future earnings.
The Chart
The price and consensus chart below shows that increased earnings expectations have help push the stock higher. The large gap between the stock and its 2012 consensus is an indication that despite the lofty multiples for ULTA, there is likely room for those multiples to increase. ULTA is a Zacks #1 Rank (Strong Buy).
Brian Bolan is the Aggressive Growth Stock Strategist for Zacks.com. He is also the Editor in charge of the Zacks Home Run Investor service
