Deutsche Bank Tuesday upgraded Club holding Estee Lauder (EL) on the back of an expected reopening of China’s economy, in line with the Club strategy of buying up the cosmetics giant’s stock as Beijing loosens harsh Covid-19 restrictions. “The opening of China is a really big deal for people going out. Don’t ignore it. Buy Estee Lauder,” Jim Cramer said during the Investing Club’s “Morning Meeting ” on Tuesday. Deutsche Bank in a research note upgraded Estee Lauder to a buy rating, from hold, due to an “increased likelihood” business in China — which accounts for more than a third of the company’s sales — will return to normal by its fiscal year 2024. The bank also raised its price target on the beauty firm, to $266 a share, up from $209 a share. Analysts at Deutsche Bank predicted margins in makeup, which are a “key driver of outsized profit growth long term,” will recover once revenues return to pre-pandemic levels. Estee Lauder’s stock climbed 3% in Tuesday trading, to roughly $237 a share. Estee Lauder, a leading manufacturer of luxury skin care, makeup and fragrance products, struggled during the Covid-19 pandemic, as people stayed home and lockdowns persisted in China. While analysts at Deutsche Bank think China ultimately presents a long-term growth opportunity for the company, they acknowledge that Estee Lauder “is likely to face challenges over the next several quarters,” as progress isn’t expected to be “quick or linear.” Still, Deutsche Bank sees “forward momentum” building over the next 6 months, aided by Estee Lauder’s new distribution centers in China, its research and development arm in Shanghai and regional manufacturing through its state-of-the-art Japan production facility, which will be ready in fiscal 2024. The Club take Estee Lauder’s business and stock have come under immense pressure due to China’s prolonged economic reopening. But the stock, down nearly 37% year-to-date, should recover once China softens its lockdown measures. That’s why we’ve been strategically buying up the stock in preparation for Beijing fully exiting its zero-Covid policy. We added to our EL position in late November , understanding the near-term uncertainty but encouraged by the company’s long-term growth potential in the region. We believe Estee Lauder has the ability to see significant growth as the company continues to expand in the world’s second largest economy and one of the world’s top global spenders in beauty and personal care. Estee Lauder is an iconic brand that’s one of the best ways to play Asia’s return to travel — and we believe we’ll be rewarded for our patience. (Jim Cramer’s Charitable Trust is long EL. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he…
Read More: Deutsche Bank validates the Club case on holding Estee Lauder