The Sweet Smell of Estee Lauder

Estee Lauder Companies (EL) is the pre-eminent global leader in prestige beauty. The company has strong brands, market presence and growth potential demonstrated by over 60 years of uninterrupted sales growth. Despite a slowdown in consumer spending in the U.S., earnings are expected to increase 12.5% this fiscal year. Concurrent with the earnings report, management provided guidance for the third fiscal quarter and fiscal 2008.

In the third fiscal quarter, management expects net sales to increase in the 7% to 9% range and diluted earnings to be in the $0.43 to $0.49 range. Despite a slowdown in consumer spending in the U.S. management believes that earnings for the full 2008 fiscal year will be in the $2.28 to $2.40 range. Estee Lauderâ?s stock has traded in a P/E range of 16.7 to 33 over the last five years. Estee Lauder is an above-average growth company among its peers.

Despite the earnings challenges in the early 2000s, the company has continued to exhibit sales growth. Estee Lauder has excellent long-term growth prospects, market presence, and brand equity. With the stock trading in the low-end of the historical valuation range, we maintain the Buy rating with a price target of $56. The target price of $56 is based on a 25 P/E on trailing 12-month earnings. 

No Need to Take Actions Semi

Actions Semiconductor Company, Ltd. (ACTS), designs and markets integrated platform solutions, including system-on-a-chips (SoCs). December quarter results missed consensus estimates on the top-line and beat estimates on the bottom-line.

The firm derives virtually all its revenue from the ultra competitive MP3 market, which has experienced serious ASP erosion. The Semiconductor Industry Association (SIA) lowered its forecast for 2007 global microchip sales growth from 10 per cent to 1.8 per cent despite solid fundamentals and continued strong unit growth in major end-markets.

The new SIA forecast projects total sales of $252 billion in 2007, rising to $306 billion in 2010. Unfortunately, ACTS has seen its average selling prices (ASP) cut in half. Help may be on the way with the companyâ?s high-end Series 13, which has 30 design wins. The ADSs began trading in 2005 at US$8 per ADS on the NASDAQ National Market under the symbol 'ACTS.' Each ADS represents six ordinary shares.

The firm is currently trading at 9.4x 2008 earnings per ADS (EPADS). It is our opinion that the Series 13 will drive long term revenue and margin expansion. However, we would remain on the sidelines until such time as the design wins are transformed into meaningful revenue growth.

It may take several quarters for the design wins in the Series 13 to translate to revenue. In the meantime, investors will be forced to digest the ASP erosion that comes with the MP3 market.