Estee Lauder: Cutting Fair Value Estimate to $120 and Raising Uncertainty Rating to High

We are lowering our fair value estimate on wide-moat Estee Lauder’s shares to $120 from $162 to incorporate a more cautious outlook as we expect prolonged woes in China (25% of total sales in fiscal 2024), higher investments, and an expanded restructuring will delay top-line and operating margin recovery. We are also adjusting our Morningstar Uncertainty Rating to High from Medium as macro headwinds in China and limited visibility on the restructuring will likely cause volatile operating results. Even so, shares remain undervalued, and we would recommend the stock for patient investors with a three- to five-year time horizon.