馃拝馃徑 THE EST脡E LAUDER COMPANIES: DERIVATIVES TRADING 馃拝馃徑
The Est茅e Lauder Companies Inc. manufactures, markets, and sells skin care, makeup, fragrance, and hair care products worldwide. It offers skin care products, including moisturizers, serums, cleansers, toners, body care, exfoliators, acne care and oil correctors, facial masks, and sun care products; and makeup products, such as lipsticks, lip glosses, mascaras, foundations, eyeshadows, and powders, as well as compacts, brushes, and other makeup tools. It offers its products under the Est茅e Lauder, Clinique, Origins, M·A·C, Bobbi Brown Cosmetics, La Mer, Aveda, Jo Malone London, Tom Ford, Too Faced, Dr.Jart+, and The Ordinary brands.
Insights:
- P/S ratio close to ≈ 2, where 2 is the lowest and 8 is the highest
- PER ratio greater than ≈ 90x
- Increase in annual income expectations of ≈ 8% with high gross margin (≈ 70%) but low operating margin (≈ 10%)
- Correlation with SP500 [SPY] of ≈ 15.5%, where their behaviour only could be explained by ≈ 2.41% in the last year [LTM]
- Beta with SP500 [SPY: Benchmark] of ≈ 0.46
Based on its last EPS [19/08/24 TTM] of ≈ $1.09 USD and a 100 Forward PER and a sensibility of ± 0.3805x annual, a hypothetical spread could be (ceteris paribus):
- High: ≈ $ 138.5 USD
- Neutral: ≈ $ 100.00 USD
- Down: ≈ $ 62.00 USD
Hypothesis
EL in the next 6 to 12 months, might have a distribution phase above ≈ $150 USD and an accumulation phase below ≈ $80 USD where there is a strong bearish bias due to its some valuations and other quantitative parameters. However, it might be an acceptable risk to take due to other valuations.
Hedge plan example:
- Call [sell]: $145 USD
- Call [buy]: $120 USD
- Put [sell]: $100 USD
- Put [sell]: $80 USD
Risks
- Prices higher than $150 for a long time
- Prices lower than $80 for a long time.
- The neutral price of $90 or $132 is not reached at expiration
- Roll over costs (if time is not well estimated)
The best analysis is yours!
J. Joel Padilla
Copyright: Joel Padilla 2024
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