Estee Lauder's latest Wall Street endorsement underscores our long-held view on the company

Published Wed, Jan 25 20233:27 PM ESTUpdated Wed, Mar 8 20232:34 PM EST

Piper Sandler on Wednesday said it sees considerable upside for Club holding Estee Lauder (EL) as China's long-awaited economic reopening drives pent-up demand for luxury goods — a view that's central to our investment case in the beauty brand. The Chinese market is a "vastly underappreciated opportunity" for Estee Lauder, analysts at Piper Sandler wrote in a research note. As daily life in China gradually returns to normal after three years of Covid-19 lockdowns and restrictions, the cosmetics giant stands to gain significantly, the analysts argued. U.S.-based Estee Lauder, which manufactures luxury skin-care products, makeup and fragrances, relies on China for more than a third of total sales. As a result, China's strict zero-Covid policy has weighed heavily on the company's earnings — and share price — since the start of the pandemic. The stock fell more than 30% in 2022, battered by weak Chinese demand, high inflation and a strong U.S. dollar . But as Chinese citizens start to travel again, long-suppressed demand should drive sales , particularly at duty-free shops in the airports of popular destinations like the island province of Hainan, according to Piper Sandler. "The Chinese consumer has excess savings ready to be spent and we suspect luxury and luxury beauty will be of high priority," the analysts wrote. Looking ahead, Piper Sandler sees massive growth potential for Estee Lauder's stock in 2023. The analysts forecasted a potential 20% upside to the stock that could "easily push shares beyond $300" apiece, boosted just by the Hainan region alone. Piper Sandler Wednesday reiterated the luxury beauty brand as a "top idea" this year, along with a price target of $290 and an outperform, or buy, rating. Similarly, analysts at Oppenheimer earlier this month said given "easing COVID-19 restrictions in China and loosening of travel restrictions, along with a weakening U.S. dollar, we now believe EL is positioned for a powerful sales and [earnings-per-share] recovery." Analysts at Oppenheimer predicted an improvement to Estee Lauder's gross margins to 2022 levels of 19.7% by fiscal year 2024 on the back of China's reopening, up from their fiscal year 2023 estimates of 16.5%. Oppenheimer maintained a $300 per-share price target