The Ratings Game: E.L.F. Beauty shares soar after outlook raised, coronavirus forecast to have minimal impact

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E.L.F. Beauty Inc. stock soared 9% in Thursday trading after the cosmetics company reported an earnings beat and raised its guidance.

Moreover, the company ELF, +9.14%   suggested that it should largely escape impact from the coronavirus outbreak in China.

“We would note that our E.L.F. offices, labs and key suppliers are at least 500 miles from Wuhan,” said Tarang Amin, chief executive of E.L.F., on the earnings call, according to a FactSet transcript.

“We have a deep and geographically diversified chain within China. It is too soon to know the impact to our operations other than a later startup to post Chinese New Year.”

See: Michael Kors, Versace parent Capri lowers revenue guidance by $100 million due to coronavirus

Other brands and retailers, like Michael Kors parent Capri Holdings Ltd. CPRI, -3.80%   and Nike Inc. NKE, -0.16%   have seen stores close and traffic decline as a result of the illness.

“We do not view coronavirus-related supply chain disruption as a near-term risk given E.L.F. is currently sitting on six months of inventory – excluding inventory sitting at retail partners – and all products are dual-sourced to mitigate outage risk,” Cowen analysts wrote in a note.

“However, supply chain risk could accelerate given current lack of certainty and clarity around resolution.”

E.L.F. closed its stores in 2019.

Cowen rates E.L.F. shares outperform with a $22 price target.

Read: Ralph Lauren has closed about half of its stores in China due to the coronavirus

E.L.F. now expects fiscal 2020 sales of $274 million to $277 million and adjusted earnings per share of 55 cents to 59 cents. The FactSet consensus is for sales of $276.5 million and EPS of 58 cents.

“Over the next three years, without major additional space or strategic extensions, we expect compounded annual top line growth in the low- to mid-single digits,” Amin said.

SunTrust Robinson Humphrey think the guidance is upbeat about the company’s ability to reach its targets.

“The better sales result and gross margin were a bit of a surprise in the quarter as we had expected the tariff impacts to be a larger drag on the business,” wrote SunTrust analysts.

“[W]ith the opportunities the company has to expand space and share in its category, we believe this outlook looks highly achievable over the next three years.”

SunTrust rates E.L.F. stock buy with a $23 price target.

E.L.F. stock has more than doubled over the past year, up 120%, while the S&P 500 index SPX, +0.39%   has gained 22.4% for the period.