Berkshire Hathaway’s stake in Ulta Beauty
Ulta Beauty’s stock has experienced a significant rise, soaring 14% since August 14, after it was revealed that Warren Buffett’s Berkshire Hathaway acquired a portion of the company in the second quarter. As of June 30, Berkshire Hathaway held around 690,000 shares of Ulta Beauty, valued at 6.3 million. This places Ulta at the 30th position in Berkshire’s portfolio, accounting for a slight 0.1% of total holdings, according to Whalewisdom data.
Although the submission did not specify if Buffett personally made the purchase, it’s noteworthy that Berkshire’s smaller stock investments are generally overseen by his portfolio managers, Todd Combs and Ted Weschler. These managers have a reputation for making calculated investments in firms with solid fundamentals and long-term growth prospects.
Buffett’s investing strategy, centered on value investing and pinpointing businesses with sustainable competitive edges, or “moats,” is widely recognized. His portfolio showcases some of the most legendary investments, including Coca-Cola, Apple, and Bank of America. Buffett has frequently highlighted the significance of long-term investment thinking, famously stating, “Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.”
Analyst responses and stock price modifications
In spite of the positive sentiment generated by Berkshire Hathaway’s investment and Ulta Beauty’s strong Q1 earnings, several analysts have adopted a more prudent viewpoint ahead of the company’s forthcoming earnings report on August 29. This has prompted a series of downward adjustments in price targets, reflecting worries over the company’s short-term performance and broader market issues.
Evercore ISI was among the first to revise its forecast, cutting Ulta’s price target from 0 to 0 on August 26. The firm kept an outperform rating but noted “ongoing category weakness, challenging competitive conditions, and the recent increase in the stock” as main reasons for the downgrade. Additionally, Evercore ISI lowered its Q2 EPS estimate from .60 to .43 and decreased its full-year FY24 forecast by 4%, from .00 to .50.
Citi analyst Kelly Crago also adopted a more cautious stance, slashing Ulta’s price target from 0 to 5 while retaining a neutral rating. Crago raised concerns regarding a possible Q2 earnings miss, attributed to “weaker comps and decreased gross margin.” This reserved outlook highlights the obstacles Ulta might encounter in maintaining its growth trajectory in a competitive retail landscape.
Baird also followed, cutting its price target for Ulta from 5 to 5, while still upholding an outperform rating. The analyst pointed to diminished confidence in comparable sales growth for the latter half of 2024, leading to a downward revision in projections. This adjustment emphasizes the uncertainty surrounding Ulta’s capacity to uphold its market presence in the face of changing consumer trends and economic challenges.
As of August 26, Ulta Beauty stock was trading at approximately 5, illustrating the market’s mixed feelings. While the investment from Berkshire Hathaway has provided a temporary uplift, the cautious outlook from analysts indicates that investors should stay alert as the company faces upcoming challenges.
