Investor concerns about Ulta are 'overblown,' analyst says

Warren Buffett's Berkshire Hathaway (BRK-B, BRK-A) has taken a stake in Ulta (ULTA), according to recent regulatory filings. Loop Capital Markets managing director Anthony Chukumba joins Market Domination to discuss the move and break down the bull case for the beauty retailer.

Chukumba explains that "to some extent, Warren Buffett's almost like the original value investor." Thus, that's likely the approach Berkshire Hathaway took when deciding to invest in Ulta. He notes that the stock has had a "pretty significant" sell-off this year largely due to concerns about a slowdown in sales as competitors like Sephora and Amazon (AMZN) gain more market share.

Loop Capital currently has a Buy rating on Ulta and a $520 price target, and Chukumba adds, "We do like the fact that Berkshire got involved with the stock. It definitely lends credibility to the story."

He calls the concerns about the company "overblown," and outlines his bull case on the company: "They have both the mass or the lower end, and prestige or the higher end products. They have a great customer loyalty program. They have a completely debt free balance sheet. They generate a ton of free cash flow. They buy back stock pretty aggressively. I think they're going to initiate a dividend later this year, which will open up the stock to income investors as well."

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This post was written by Melanie Riehl

Video Transcript

Anthony, we had uh interesting news on one of the stocks that you cover.

Uh Ulta, Warren Buffett and Berkshire Hathaway coming in and uh a state being revealed that they bought into the company.

I'm curious because what, what's the investor story for Ulta right now?

Why would a group like Berkshire be buying that stock?

What's kind of the bull case there?

Well, you know, I mean, look, uh um to some extent, Warren Buffett is like almost like the original value investor, right?

And I think that that's the way that they looked at it.

I mean, that is a stock that has had a pretty significant selloff year to date.

A lot of that has to do with concerns about a slowdown in beauty sales.

Um A lot of that has to do with uh concerns about increased competition uh with Sephora going into Coles and it seems like Amazon's getting a few more prestige brands um or higher end brands and they've, they've had in the past, you know, look, we, we like alta, we have a buy rating $520 price target.

Um We do like the fact that um you know that uh Berkshire, you know, got involved with the stock, it definitely uh lends, lends credibility to the story.

Um You know, we think that concerns are, are overblown.

I mean, this is a, this, you know, this industry is still actually growing right now.

I think that uh makeup and beauty care products are much more, um you know, are much less discretionary.

I think a lot of investors are, uh Ulta has a great model where they have both the uh mass or the lower end and prestige, the higher end products.

They have a great customer loyalty program.

They have a completely debt-free balance sheet.

They generate a ton of free cash flow.

They buy back stock pretty aggressively.

I think they're gonna initiate a dividend later this year or to open up the stock to uh to income investors as well.

Um So, um, you know, look, it's, it's always, it's always nice uh, when you have a buy rating and, and, and Berkshire Hathaway.

Thank you, Warren.

All right, Anthony, I appreciate it.

Have a great weekend.

You too.