Piper Sandler analysts are highlighting a recently-conducted survey of teens to underscore their bullish stance on two stocks.
The financial firm surveyed approximately 14,500 teens across 47 states and identified new opportunities for Lululemon Athletica Inc. (NASDAQ:LULU) and E.L.F. Beauty (NYSE:ELF).
The analysts upgraded Lululemon’s rating from Neutral to Overweight and upsized its 12-month price target from $320 to $350.
E.L.F was also upgraded to Overweight, with a hike in its price target from $35 to $46.
Key Beauty And Wellness Insights From The “Taking Stock With Teens” Report
“Despite a tougher macro backdrop, the core beauty wallet for teens has returned to pre-pandemic levels,” wrote Korinne Wolfmeyer, senior research analyst at Piper Sandler.
The firm published the 44th edition of its survey of teens, which has been running on a semi-annual basis for over 21 years.
The teen female beauty category grew 20% year-over-year, led by 28% growth in cosmetics. The percentage of teens wearing makeup every day rose to the highest level seen since the fall of 2017.
The beauty category picked up in the summer and the firm believes that this momentum will continue throughout the year.
Of all the companies covered by the firm, E.L.F. Beauty and Bath & Body Works (NYSE:BBWI) had the strongest results for the cosmetics and fragrance categories, respectively.
ELF Winning In The Makeup Category
The firm upgraded its price target for ELF after noting that the teen survey showed a “clear and consistent preference for e.l.f. products” and notable share gains across all income groups.
The Thesis: ELF ranked as the top makeup brand for average and high income groups amongst teens, who are spending more money on makeup.
Wolfmeyer believes E.L.F. Beauty can “not only continue growing its top line in the double digits, but also take advantage of margin expansion opportunities and reach 20%+ EBITDA over the coming years.”
Results from the survey give Piper Sandler greater confidence that demand for E.L.F. Beauty products will remain strong after the summer, with growing traction amongst the upper income groups as well as increasing emphasis on the digital channel, which has resonated well with Gen Z consumers.
Lululemon’s Positive Outlook For The Cold Winter
Piper Sandler’s latest survey also influenced its analysis of apparel company Lululemon.
The Thesis: Lululemon gained significant mindshare in the firm’s teen survey, “underpinning the aspirational nature of the brand and its ability to attract a new generation of consumers.”
The brand ranked as the second most favorite apparel brand after Nike (NYSE:NKE) among teens.
“We continue to believe LULU has best-in-class product innovation which should drive demand, and we do not believe LULU will have to react as much as peers to the more intense promotional environment,” wrote the firm’s analysts.
The coming fall and winter are expected to have colder temperatures than in previous years. With better in-stock levels, the firm sees an opportunity for Lululemon to outperform in the outerwear category.
Price action: ELF stock was at $39.65 at the time of this writing on Tuesday, up 5.76%. Lululemon shares were trading at $295.72, up 2.02%.
Foto de yunona uritsky en Unsplash.
