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Why Estee Lauder Shares Rose Today

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China’s decision to lower interest rates had a positive impact on the stock prices of Estee Lauder.

Shares of Estee Lauder (EL), a leading cosmetics company, experienced a rise today following the announcement that China’s central bank was reducing interest rates to boost economic activity. Estee Lauder relies heavily on the Chinese market, which has faced challenges recently. Consequently, the stock’s positive response to the news is not unexpected. As of 12:37 p.m. ET, shares had increased by 4.1%.

China’s move to cut mortgage and other interest rates by 50 basis points aimed to stimulate the economy, leading to a broad increase in Chinese stocks, particularly those of consumer-facing companies. The People’s Bank of China also lowered the required reserve ratio for banks, releasing an estimated $142 billion for loans.

Estee Lauder stands to benefit from these measures. The company’s stock had seen significant gains during the pandemic due to robust demand for skincare products from China, but it has recently declined due to the weak economy.

China remains a crucial market for Estee Lauder. For the fiscal year ending June 30, the Asia/Pacific region, predominantly composed of China, contributed nearly one-third of the company’s revenue. A recovery in Chinese sales could be highly impactful, considering the region’s historical profitability for the firm.

In the most recent earnings report, Estee Lauder’s management noted that weakness in China contributed significantly to a 3% decline in revenue for the Asia/Pacific region in the fiscal fourth quarter.

While the 50-basis-point rate cut alone might not be sufficient to fully revive Estee Lauder’s stock, investors should monitor the situation. With the stock currently down more than 75% from its previous peak, there is potential for a rebound. Estee Lauder’s large portfolio of global brands positions it well for eventual recovery.

Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool also holds no position in any of the stocks mentioned. More details can be found in The Motley Fool’s disclosure policy.

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