Several companies in the Zacks Cosmetics industry are benefiting from strong online business. Companies in the space are expanding their omnichannel capabilities to aid flexible and convenient shopping options for consumers.

Cosmetics companies are witnessing burgeoning demand for skincare and personal care products, given consumers’ growing inclination toward self-care. Also, focus on prudent product launches is working for companies like The Estee Lauder Companies Inc. EL, Coty Inc. COTY, Inter Parfums, Inc. IPAR and Helen of Troy Limited HELE.

That said, players in the space are facing high inflationary pressures and supply-chain disruptions. Inflationary risks on consumer spending behavior are affecting demand for several companies’ products.

About the Industry

The Zacks Cosmetics industry includes companies providing beauty and personal care products. Players in the industry manufacture, distribute, sell and market skincare, fragrance, makeup and hair care products. Many firms in the space market via sales representatives, whereas some sell products through retailers, independent and chain drug stores and pharmacies, upscale perfumeries, department stores and beauty salons. The companies also operate through retailer websites, third-party distributors and in-flight and duty-free shops. Some of the products offered by the industry participants include moisturizers, serums, toners and cleansers under skincare; perfume sprays, candles and soaps under fragrance; lipsticks, mascaras, powders, eye shadows, foundation and nail polishes under makeup; and shampoos, conditioner and hair color products under hair care.

Trends Shaping the Future of the Cosmetics Industry

Strong Demand for Skincare, Makeup: Burgeoning demand for skincare and other personal care products has been an upside for several cosmetics companies. Consumers’ increased focus on self-care and maintaining healthy skincare routines works well for this category. Strength in the makeup category, courtesy of demand for beauty products amid more socialization, has been driving growth for cosmetics players. Players in the space are also seeing strength in the fragrance and haircare category, with product newness being a solid driver. Such upsides are likely to continue supporting the top-line performance of cosmetics companies

Innovation & Digitization – Major Drivers: Talking of beauty and skincare, consumers keep expecting unique product offerings incorporating the latest technologies and expert scientific formulations. Focus on resonating with consumers’ evolving preferences has kept cosmetics players busy in terms of innovation and product launches. Increased consumer awareness has also stimulated demand for organic skincare and “clean beauty” products. Further, Cosmetics players’ foremost priority has been to broaden their market reach by boosting e-commerce capabilities. Companies in the space have made significant progress, evident from tools like virtual try, new digital payment solutions and digital marketing efforts. Other than this, players have been fueling brand portfolios through prudent buyouts and strategic alliances.

Inflationary Headwinds: Companies in the cosmetics space are encountering inflationary pressure on operating costs like labor, supplies and travel, among others. Several players are battling supply-chain disruptions stemming from prolonged COVID-associated factors, congestion at ports and reduced airfreight capacity, resulting in increased freight costs. The impact of lower demand due to inflationary pressure and reduced discretionary expenses is also a major concern for the payers.

Zacks Industry Rank Indicates Bright Prospects

The Zacks Cosmetics industry is housed within the broader Zacks Consumer Staples sector. The industry currently carries a Zacks Industry Rank #89, which places it in the top 36% of more than 250 Zacks industries.

The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates solid near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.

Before we present a few stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.

Industry Vs. Broader Market

The Zacks Cosmetics industry has underperformed the Zacks S&P 500 composite and the broader Zacks Consumer Staples sector in the past year.

The industry has declined 17.5% over this period compared with the S&P 500’s decline of 11.3%. The broader sector has moved down 2.6% in the said time frame.

One-Year Price Performance

Industry’s Current Valuation

On the basis of forward 12-month Price-to-earnings (P/E), which is commonly used for valuing consumer staples stocks, the industry is currently trading at 33.9X compared with the S&P 500’s 18.47X and the sector’s 18.7X.

In the past five years, the industry has traded as high as 45.92X, as low as 19.64X, and at the median of 29.07X, as the chart below shows.

Price-to-Earnings Ratio (Past 5 Years)

4 Cosmetics Stocks to Keep a Close Eye on

Inter Parfums: The Zacks Rank #1 (Strong Buy) company manufactures, distributes and markets a wide range of fragrances and related products. Inter Parfums is benefiting from growth across European and U.S. operations, courtesy of impressive brand performance. IPAR’s focus on innovation and product launches is a key driver. Management is on track to expand its business through new licenses or acquisitions. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for IPAR’s 2023 earnings per share (EPS) has moved up 4.2% to $4.00 per share over the past 30 days. Shares of Inter Parfums have rallied 81.7% in the past six months. IPAR has an expected EPS growth rate of 15% for three-five years.

Price and Consensus: IPAR

Coty: This manufacturer, marketer and distributor of beauty products presently carries a Zacks Rank #2 (Buy). Coty is benefiting from its focus on six strategic pillars aimed at sustainable growth. These include stabilizing Consumer Beauty brands, strengthening e-commerce and establishing a solid skincare portfolio, among others. COTY has made several strategic partnerships to enhance its brand portfolio. The focus on optimizing the cost structure bodes well.

The Zacks Consensus Estimate for Coty’s fiscal 2023 EPS has remained unchanged in the past 30 days at 37 cents. COTY’s stock has gained 72.6% in the past six months. COTY has an expected EPS growth rate of 14.7% for three-five years.

Price and Consensus: COTY

The Estee Lauder Companies: This New York-based company manufactures and markets skincare, makeup, fragrance and hair care products. The Zacks Rank #3 (Hold) company is benefiting from a strong online business. In this regard, The Estee Lauder Companies has been implementing new technology and digital experiences, including online booking for each store appointment, omni-channel loyalty programs and high-touch mobile services. EL has a strong presence in emerging markets, insulating it from the macroeconomic headwinds in the matured markets.

The Zacks Consensus Estimate for the company’s fiscal 2023 EPS moved up by a penny in the past 30 days to $4.97. EL’s shares have increased 8.5% in the past six months. The Estee Lauder Companies has an expected EPS growth rate of 9.2% for three-five years.

Price and Consensus: EL

Helen of Troy: This provider of consumer products across Beauty, Housewares and Health & Home segments is focused on making solid investments in its Leadership Brands. Helen of Troy is making major investments in key areas to continue driving growth. To this end, the company is investing in consumer-centric innovation, digital marketing and media, new packaging, enhanced production and distribution capacity and direct-to-consumer channels, among others. The Zacks Rank #3 company’s focus on developing a global restructuring plan, Project Pegasus, looks promising.

The Zacks Consensus Estimate for Helen of Troy’s fiscal 2023 EPS has remained unchanged in the past 30 days at $9.32. The company’s stock has declined 7.2% in the past six months. HELE has an expected EPS growth rate of 8% for three-five years.

Price and Consensus: HELE

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

The Estee Lauder Companies Inc. (EL) : Free Stock Analysis Report

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Coty (COTY) : Free Stock Analysis Report

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