Promising Mid- to Long-Term Growth Outlook! UBS Backs Ulta Beauty (ULTA.US): Stock Price Expected to Rise Another 38%

According to Jinse Finance APP, after cosmetics retailer Ulta Beauty (ULTA.US) released its latest financial report, UBS published a research note stating that Ulta Beauty is currently in a good position and its stock price may have further upside potential. UBS pointed out that as Ulta Beauty continues to deliver strong results each quarter and maintains a conservative approach when setting expectations, the market is more likely to assign it a higher valuation multiple. UBS has given Ulta Beauty a "Buy" rating in its financial report, raising the 12-month target price from the previous $640 to $680. The latest target price represents about a 38% upside from the stock's closing price last Friday.

UBS stated that for the second quarter, there were hardly any issues with Ulta Beauty's performance—same-store sales grew by 6.7%, far exceeding the market consensus of 5%. This growth was driven by a 3.7% increase in transaction volume and a 2.9% rise in average ticket size. Although the beauty market improved in the first and second quarters, Ulta Beauty's growth outpaced the entire industry. Most of the improvement came from better execution, more new products, and other initiatives. In addition, Ulta Beauty achieved improvements across all store types, including stores without major new competitors, stores with only one competitor, and stores with multiple new competitors.

UBS believes these factors are all very favorable for business development in the second half of the year. However, the company's guidance indicates a significant slowdown, with same-store sales growth expected to be flat to low single digits. Considering the uncertainties faced by consumers and the recent challenges Ulta Beauty has experienced, this cautious approach is reasonable. Nevertheless, UBS still believes the company is well-positioned to continue outperforming the industry and may further drive an upward cycle of earnings expectations.

UBS stated that looking ahead to 2026, Ulta Beauty will see more growth drivers, such as the full launch of third-party marketplaces, the extension of "replenish and save," and other revenue-driving factors. In addition, some capital expenditures will slow down. The company should be able to maintain 5-6% revenue growth and double-digit earnings per share (EPS) growth.

UBS added that as Ulta Beauty continues to exceed short-term fundamental targets, the company may at some point revisit its long-term financial goals. This brings another potential positive catalyst for the medium term. In particular, as peak investments in sales and management expenses gradually subside, the company's long-term profit margin target (about 12%) has the potential to be raised. Furthermore, compared to previous plans, accelerated international expansion may bring a higher overall sales growth rate, and the potential outperformance of new revenue channels such as UB Media and third-party marketplaces is expected to continue supporting the company in maintaining double-digit EPS growth.