Goldman Sachs upgraded Ulta Beauty (ULTA) stock to Buy from Hold on attractive valuation and favorable sales momentum. Analyst Kate McShane boosted the price target to $423 from $384, indicating 13% upside potential. ULTA stock gained 2% on Tuesday but is down 14% year to date. The specialty beauty retailer recently impressed investors with upbeat Q4 earnings.
Here’s Why Goldman Sachs Believes that ULTA Stock is a Buy
McShane pointed out that Goldman Sachs has been on the sidelines on Ulta Beauty stock since December 2022 due to concerns over the normalization of beauty industry sales and share loss in the prestige category. However, the firm has turned bullish as it believes that a bottom has likely been reached with regard to both concerns.
The 4-star analyst thinks that ULTA could report momentum in its Q1 and FY25 comparable sales. McShane’s optimism is based on the favorable quarter-to-date trends that seem supportive of the current comparable sales guidance, with some acceleration observed recently.
McShane also noted that Ulta’s monthly active users have been trending higher since November 2024, following a year of slight sequential growth. Ulta Beauty is also seeing a notable rise in search activity on a year-over-year basis for its “21 Days of Beauty” offering. Another positive is that the analyst expects rivalry in the beauty space to be less of a challenge, given the indications of improving trends for ULTA’s new product introductions (NPIs) compared to rival Sephora.
The analyst contended that Ulta Beauty’s FY25 margin outlook could be conservative, given the company’s track record of delivering better-than-anticipated growth in selling, general, and administrative expenses. Finally, the analyst noted that ULTA stock’s valuation is attractive, with its P/E (price-to-earnings) multiple at 15.8x, below the 3-year average of 17.9x. McShane ranks 1,005 out of more than 9,400 analysts on TipRanks. She has a success rate of 60% and has achieved an average return per rating of 4.8% over a one-year period.
Is ULTA Stock a Buy, Sell, or Hold?
Overall, Wall Street is cautiously optimistic on Ulta Beauty stock, with a Moderate Buy consensus rating based on 11 Buys, 10 Holds, and one Sell recommendation. The average ULTA stock price target of $412.52 implies 10.3% upside potential.
