Lazard Notes Bare Escentuals As Recession-Resistant (BARE)

Bare Escentuals, Inc. (NASDAQ: BARE) may be one sweet spot that is at least partially immune from the ups and downs of consumer spending.  Today we are getting word out of Lazard Capital Markets that its analyst Jacklyn Rider, its Healthy Lifestyles analyst, is reiterating her Buy rating on Bare Escentuals with a $27.00 target as she feels the growth story is unchanged.  This is fairly new coverage from Lazard Capital Markets as it appears the firm initiated it with a Buy rating earlier this month.

This call is after the company’s management presented at the ICR Xchange conference in California last week to a standing-room only crowd. The company reiterated its long-term growth opportunities to acquire customers, cross-sell products, and expand its points of distribution and international business.

Some of the points noted was a back to basics approach for new products and this note even discusses a recession-resistant product line that "is less sensitive to economic factors and that women will give up other discretionary items before makeup."  Ms. Rider also noted that channel checks indicate that customer demand and enthusiasm for Bare Escentuals’ products have not seen any slowdown.

Lazard is maintaining its earnings estimates of $0.93 for 2007, $1.18 for 2008, and $1.50 for 2009.  The $27 price target is based upon a 18X Lazard’s above consensus 2009 estimate, a discount to two-year earnings growth, and under the low-end of its historical earnings multiple.

The company designs and sells  premium make-up for women with an all-natural and additive-free product line.  We also believe this make-up aspect of the business is at least more recession-resistant than many other businesses (particularly compared to apparel or other discretionary spending), particularly in light of the fact that the company has an all-natural and irritant-free formula.

BARE shares are up 1.8% today at $20.33 right after noon, and the 52-week trading range $19.25 to $43.22 after coming public at higher prices in late-2006.

Jon C. Ogg
January 22, 2008