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What: Shares of Estee Lauder
So what: Fifty cents doesn't sound like a lot, but when you consider that the most EL was promising back in October was $3.10 per share, it makes for a 16% boost to the profits the company could pull down this year. Perhaps more importantly, Estee Lauder increased its lead over rival cosmetics firms such as Avon
Now what: So why am I not running out to buy shares of Estee Lauder? They're too expensive. Consider: At 35 times trailing earnings, EL sells for a huge premium to any of its competitors. For another, the further past the headlines I read, the less impressed I am with Estee Lauder's earnings report. Down on the cash flow statement, for example, we see that while reported profits are up 34% year-to-date, operating cash flow is down 18%, and actual free cash flow has plummeted 29%.
I won't invoke the "skin-deep" cliche against Estee Lauder's profits. But I will say this: They're less attractive than meets the eye -- especially at this price.
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