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Ulta shares could go much higher once it breaks out of current range, analysts say

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D.A. Davidson bets on Ulta Beauty as country continues reopening process

The reopening of the U.S. economy after the coronavirus shutdown has D.A. Davidson betting on Ulta Beauty as a stock that could benefit in the march back to normalcy.

Analysts at the firm initiated Ulta Beauty with a buy rating on Thursday, calling it the "Ulta-mate of all reopening trades" as consumers pivot back to beauty and wellness.

Matt Maley, chief market strategist at Miller Tabak, said the technical setup in Ulta's charts also points to gains ahead.

"It had a nice run like every other stock did off the March lows, but then it pulled back at the beginning of the summer. But, when it did, it created a much higher low and a very nice base there, and then it's rallied back up. Now it's trying to push up and follow that higher low with a key higher high," Maley told CNBC's "Trading Nation" on Thursday.

A higher high would establish the reversal of the downtrend. Now it faces its crucial next test, said Maley.

"If it can break above the $255-$260 range, not only will it make it a higher high, but it will also break it above its trend line going back to the 2019 highs back in the summer of last year," said Maley. "If we get it above $260, it's going to get another nice leg higher and would give it a lot of momentum through the end of the year."

Ulta closed Thursday at $232.10 a share. A move to $260 implies 12% upside.

Gina Sanchez, CEO of Chantico Global, sees Ulta Beauty as a survivor in the retail space even in a lackluster economic recovery.

"I think the reopening will likely be less exciting than people think. I don't think it's going to be as strong as people expect. However, a stock like Ulta that has … they lost 26% sales year over year but they gained in e-commerce 200% [can perform well]," Sanchez said during the same "Trading Nation" segment.

Ulta reported fiscal second-quarter earnings at the end of August. The company posted profit of 73 cents a share, down from $2.72 a share a year earlier. Sales fell to $1.23 billion from $1.67 billion.

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