Morgan Stanley raises ULTA Beauty stock target to $550

Morgan Stanley raised its ULTA Beauty price target to $550 from $460, maintaining an Overweight rating, citing a favorable risk/reward scenario with a potential 20% upside based on the post-market price. This follows ULTA's strong Q1 2025 performance, where comparable store sales increased by 2.9%, exceeding expectations, driven by its Unleashed strategy. Despite anticipated softer comps in the second half of 2025, the firm believes ULTA's current valuation of 18x forward year two EPS, approximately 22% below its long-term average, presents an attractive entry point given its potential for operating leverage and EBIT margin recovery.

Analysis

Morgan Stanley has significantly upgraded its price target for ULTA Beauty to $550 from $460, maintaining an Overweight rating. This revision is based on a positive risk/reward assessment, implying a potential 20% upside from ULTA's post-market price of $421.79, with bull and bear case scenarios projecting +45% and -25% respectively. The firm's confidence stems from ULTA's strong first-quarter 2025 results, where comparable store sales surged by 2.9%, significantly outperforming Wall Street's 0.4% expectation and the market's 1% forecast. This growth, driven by the "Unleashed" strategy encompassing improved execution, new brand introductions, and enhanced promotional and marketing efforts, was further evidenced by Q1 earnings per share of $6.70, which surpassed the $5.75 forecast, and revenue of $2.85 billion, exceeding the anticipated $2.79 billion, leading to a positive after-hours stock movement.

InvestingPro data corroborates ULTA's financial strength with a "GREAT" overall score, a robust 42.78% gross margin, and a 50% return on equity, accompanied by eight upward earnings estimate revisions. Despite expectations for a softer second half in 2025, with comparable sales anticipated to range from slightly negative to modestly positive, Morgan Stanley views ULTA's current valuation—around 18 times forward year two P/E and approximately 22% below its long-term average—as an attractive entry point. The firm believes ULTA can sustain momentum in comparable sales and market share, potentially driving operating leverage and a return to mid-teens EBIT margins. ULTA's management has guided for fiscal year 2025 EPS between $22.65 and $23.20 and full-year net sales of $11.5 billion to $11.7 billion, with flat to 1.5% comparable sales growth. Reflecting a more cautious stance, Bank of America Securities raised its target to $455 but maintained a Neutral rating, acknowledging strong sales and gross margin performance.

Key Decisions for Investors

• Investors may find ULTA Beauty an attractive opportunity given Morgan Stanley's $550 price target representing ~20% upside, the company's strong Q1 2025 earnings beat, and its current valuation at a 22% discount to its long-term average P/E.
• Key factors to monitor include ULTA's ability to maintain momentum from its "Unleashed" strategy and achieve its full-year comparable sales growth target of flat to 1.5%, especially considering the anticipated softer H2 2025.
• Consider the contrasting analyst ratings (Morgan Stanley's Overweight vs. Bank of America's Neutral) and the wide analyst target range ($315-$510, with Morgan Stanley at $550) when assessing conviction levels and potential position sizing.