Ulta is a good pick despite a post-earnings sell-off, UBS said. Analyst Michael Lasser named the buy-rated beauty stock a top idea exiting second-quarter earnings season. "After ULTA's shares have pulled back by 20% in the last month, we think the risk-reward is firmly tilted to the upside," he said in a note to clients Thursday. ULTA YTD mountain Ulta, year to date When reporting earnings last month, the company beat expectations on both lines. Earnings per share came in at $6.88, including a 14-cent-per-share benefit, ahead of the $6.82 consensus estimate of analysts polled by FactSet. Ulta posted $2.63 billion in revenue, slightly edging out the $2.62 billion analyst forecast. But the company narrowly missed expectations of comparable sales, reporting 9.3% against a 9.4% estimate. Lasser noted the stock trades at 16.5 times the firm's per-share earnings estimate for 2023, which is almost 40% below the average price-to-earnings multiple for the next 12 months of 27.3 times seen in the last five years. Using that average multiple under the assumption the market is discounting estimates for next year, he said it can be implied the stock is anticipating earnings per share of around $15 in 2024. That would mandate an approximately 8% operating margin, which Lasser said is just half the company's long-term target set at between 14% and 15%. "Perhaps, the market is assigning a lower multiple than the average of the last 5 years," he said. "But, the point is that expectations have moved to an extremely low level." Lasser also noted comparable sales estimates imply the compound annual growth rate will slow 90 basis points in the third quarter and 40 basis points in the fourth quarter. That's another reason to like the stock's setup, he said. — CNBC's Michael Bloom contributed to this report.
