Three beauty stocks – Coty Inc. (COTY), Estee Lauder Cos. (EL) and Ulta Beauty (ULTA) – have far outpaced the bull rally this year, rising 20% to more than 70%, as these companies sharply boost sales by targeting their message to millennials on social media. The use of social platforms like Facebook Inc.’s (FB) Instagram and Twitter Inc. (TWTR) have worked to lift cosmetic sales as companies are more capable than ever to target their core consumers, promoting and responding directly to users, as outlined by CNBC.

3 Millennial-Driven High Fliers

(YTD Stock Performance)

·     Coty Inc.; 70.6%

·     Estee Lauder; 20.3%

·     Ulta Beauty Inc.; 26.6%

Source: Investopedia

Consumers Gain More Voice

"Consumers are becoming more vocal and have more of a say in products, especially in social media," said Alison Gaither, a beauty analyst at marketing research company Mintel. "Brands are responding and that's something they weren't able to do before."

Technical Charts Signal Continued Upside

On the technical side, the charts are signaling a continued rally for the cosmetics leaders, per Mark Newton, technical analyst and founder of Newton Advisors.

"They've had a pretty substantial run but you look at things like the S&P household and personal products index recently [they] have just pushed onto a new all-time high,” said Newton. "So it's really more of a secular longer-term breakout in my opinion."

The technician added that while the broader consumer staples industry is flat over the year, the household and personal products sub-industry has broken out of a nearly 10-year downtrend. He views the sub-sector as a solid defensive play.

Coty Posts Better-Than-Feared Results

Coty, which owns popular brands like CoverGirl and Clairol, saw its stock soar on earnings results earlier this month. While the New York City-based company continues to grapple with its massive debt load, bulls are confident in the new management’s ability to turn around the company, as outlined by Barron’s. The beauty brand is now forecasting a profit recovery in the second half of the year, and to be free cash flow positive for 2019.

In the recent earnings call, CEO Pierre Laubies, who took the helm at Coty in November, addressed his plan to combat supply chain issues and improve its beaten down consumer division. Coty’s products have struggled alongside a trend away from mass-market products solid at discount stores. Laubies hopes to bolster Coty’s product pipeline, up its marketing game and reduce complexity and prices.

In a note this November, in which BMO Capital Markets analyst Shannon Coyne upgraded Coty shares, she cited optimism regarding new management.

“After several discussions with management, we learned the current thinking is that the prior management team was trying to do too much, too soon, and as a result lost its way, ignoring brand building and execution basics,” wrote the BMO analyst.

Ulta Beauty: 4 Reasons to Buy

Analysts at Cowen & Co are upbeat on Ulta Beauty, lifting their price target to $320 from $288 in September, implying a 3.2% upside from current levels.

Cowen’s Oliver Chen listed at least four reasons to buy Coty stock, which he rates at outperform, per Barron’s. He cites the company’s robust product pipeline, as well as the expansion of its boutique locations, which grew by 700 to 3,000 in fiscal 2018. Moving forward, Ulta should benefit from easier comparable-store sales and margin comps, notes Chen, who also highlights the company’s “exceptional” relationship with cosmetics lovers. Meanwhile, the firm continues to build out its digital and physical footprint, as well as a leading loyalty program, which Chen views as significant barriers to entry. 

Looking Ahead

It’s important to note that many investors, and even companies themselves, are still working at understanding social media and the millennial cohort. That being said, it's unclear if the demand fueling these products will be short-term or long-term.

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