Cosmetics Are the Best Investment in Dying Retail Right Now – Here’s Why –

It’s time to buy Ulta Beauty Inc. (ULTA) , according to Cowen & Co.

“We believe department store promotional fears are overblown and are not new,” Cowen analyst Oliver Chen wrote in a Monday, July 31, note. “Ulta’s loyalty, prestigious brand access and mass offerings drive traffic and are competitive moats, enabling Ulta to protect and gain share.”

Shares of Ulta dropped 1.35% to $245.25 early this afternoon after Oppenheimer downgraded the beauty retailer’s stock to “market perform” from “outperform.” The downgrade came after L’Oreal (LRLCY) , an Ulta partner, said on a company earnings call on Friday, July 28, that the U.S. market has been weak and its beauty brands pressured by an increase in discounts in department stores.

“We now view the backdrop as more challenging for Ulta to deliver the same level of comp and earnings upside investors have grown accustomed to,” Oppenheimer analyst Rupesh Parikh said in the note.

Cowen’s Chen said with Ulta’s stock down 17% since the first quarter, “we would be buyers of the shares on the pullback.” For the full 2017 year, Cowen estimates Ulta’s same-store sales to grow 7% to 9%.

Last week, Paris-based L’Oreal reported same-store sales rose 4.3% and posted revenue of €6.6 billion ($7.8 billion) for the second quarter. The company said its revenue was driven by premium skincare, makeup and perfume brand L’Oreal Luxe and indie brand IT Cosmetics, but noted that its sales were “deteriorating” in the U.S.