QS Research · Michael Burry's Scion Capital analyst template · 2006
ESTEE LAUDER COMPANIES INC (EL)
As of 2026-11-11 · 12/15 boxes filled from SEC filings and market data
Report price $113.43 (close 2026-11-10)
Conclusion: SHORT
Conviction medium · base case -77% · downside -77% · upside +9%
The market is paying 25.3x EV/EBITDA and 112.8x GAAP P/E (51.6x operating) for a business whose TTM ROIC is 8.0% against a 10.2% WACC and whose TTM net income to common is only $368M. The Q1 FY2027 beat and raised FY2027 outlook are real, but the independent base at the peer-median 25.5x P/E is $25.64 (-77%) on that TTM earnings base. Even at today's EV/EBITDA, a modest EBITDA recovery to $1.90B on an 11.8% margin leaves only about +9% upside, roughly $120-$124 per share. I would be short/avoid: the turnaround needs a margin recovery that the current price already capitalizes, while ROIC below WACC gives little valuation protection.
Key numbers
- Share price: $113.43
- Market cap: $41.53B
- Latest financial period: TTM to Sep 30, 2026
- Revenue (TTM): $15.28B
- EV / EBITDA (TTM): 25.3x
- P/E (TTM): 112.8x
- FCF yield: 3.7%
- Price / book: 10.28x
- P/E, operating (tax-normalized) (TTM): 51.6x
- EV / FCF (TTM): 30.1x
- Revenue growth (latest fiscal year): +5.0%
- ROIC (TTM): 8.0%
- WACC: 10.2%
- Economic profit spread: -2.2 pts
The 15 boxes
- ✓ 1. Long-form business notes
EL is a prestige-beauty wholesaler and direct-to-consumer operator with more than 20 brands across skin care, makeup, fragrance, hair care and other; the FY2026 10-K describes a February 2025 "Beauty Reimagined" plan and a July 1, 2025 four-region reorganization. Comparing FY2021 with FY2026, TOM FORD moved from a license to an owned brand, DECIEM moved from ~76% to full ownership, and the reported regional structure changed; revenue was $16.21B in FY2021, $15.05B in FY2026 and $15.28B TTM to Sep 2026. TTM operating income was $1.02B and operating cash flow $1.95B; the sources do not provide category or regional profit, so unit economics by segment cannot be measured.
- ✓ 2. Competitive advantage
The claimed durable asset is the brand portfolio, not technology: the company owns the trademarks on Estée Lauder, Clinique, M·A·C, La Mer, TOM FORD, The Ordinary, Dr.Jart+ and others, holds exclusive worldwide licences for AERIN, Balmain and Dr. Andrew Weil, and says no single patent or copyright is material. The record does not yet prove a durable advantage in the numbers: revenue was $15.05B in FY2026 versus $16.21B in FY2021 (TTM to Sep 2026 $15.28B), and operating income fell from $3.17B in FY2022 to $780M in FY2026. Gross margin held near 76% across the six years, so brand pricing survives; the failure is below the gross line, and net income to common was -$1.13B in FY2025 and $368M TTM.
- ✓ 3. 10-Q takeaways
Q1 FY2027 (quarter ended September 30, 2026) net sales rose 7% to $3,715M (+6% organic) on volume of +7% and pricing of -1%; gross margin rose 230bp to 75.7% and reported operating income doubled to $408M (11.0% margin), while adjusted operating income was $449M, or 12.1% of sales versus 7.3%. Growth was broad by region — Mainland China +15% ($614M, +9% constant currency), Asia/Pacific +9%, Americas +5%, EUKEM +2% — and led by fragrance (+19%) and skin care (+5%). The quarter consumed cash: operating cash flow -$166M versus -$340M a year earlier and free cash flow -$235M versus -$436M. The 10-Q flags tariffs as a possible material drag on fiscal 2027 profitability and cash flow; neither the 10-Q outlook nor the earnings release excerpt gives numbers for FY2027 guidance, and the computed risk-factor diff shows no risk factor added.
- ✓ 4. Corporate governance
Filled; members read this box.
- ✓ 5. Overview of the prior 3 years of 8-K filings
Filled; members read this box.
- ✓ 6. Other significant filings
Filled; members read this box.
- ✓ 7. Chronology of significant news and events
Filled; members read this box.
- ✓ 8. Comparables valuation interpretation
Filled; members read this box.
- ✓ 9. Insider trading interpretation
Filled; members read this box.
- ○ 10. Earnings-call notes
- ○ 11. Impression of the shareholder letter
- ○ 12. Scuttlebutt overview
- ✓ 13. Valuation and risk/reward summary
Filled; members read this box.
- ✓ 14. Current price suppression and potential catalysts
Filled; members read this box.
- ✓ 15. Conclusions
The call above.
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