e.l.f. Beauty, Inc. Morgan Stanley's Preferred SMID Cap Pick

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By Sam Boughedda

On Wednesday, Morgan Stanley raised the price target on shares of e.l.f. Beauty, Inc. (NYSE:ELF) to $46 from $42, reiterating an Overweight rating.

In addition, Morgan Stanley is raising topline/EPS estimates "even further above consensus" post U.S. scanner data strength.

"ELF remains our preferred SMID cap pick with recent U.S. scanner data confirming potential fundamental upside near-term and driving our higher estimates/price target today," explained an analyst.

"While ELF's stock is +30% in the LTM and by far the best performer in our coverage (for perspective STZ is second best at +11%), we still see solid near 20% PT upside with ELF trading at a too low ~18.5 times EV/EBITDAS CY23e multiple despite low-teens LT topline growth potential, below high growth CPG peers reaching the low 20's multiple range," the analyst added.

While the analyst acknowledged that their estimates "could still be too conservative," he explained that their organic revenue growth forecasts are "still nearly 400 bps above consensus per annum each in FY23/FY24."

"ELF momentum is being driven by ELF market share gains, which are accelerating as ELF implemented pricing with limited resulting volume demand elasticity, and as ELF's lower-price portfolio benefits from recent consumer trade-down," added the analyst. "ELF share gains should also drive longer-term momentum with a virtuous cycle as retailers allocate more shelf space to ELF, which should subsequently drive sales, and topline upside should also allow for continued reinvestment in marketing, which further supports share gains."

ELF shares are up more than 4% Wednesday.