11:29 AM EDT, 08/21/2024 (MT Newswires) -- Ulta Beauty ( ULTA ) is undervalued due to "too much negativity" about its medium to long-term prospects, UBS Securities said in a note emailed Wednesday.

The market expects Ulta Beauty ( ULTA ) to report flat to down -1% comparable sales growth and lower earnings per share for Q2, with a potential guidance reduction for the rest of the year due to heightened competition and slower category growth, UBS said.

"In our view, [Ulta Beauty's ( ULTA )] shares are still pricing in too much negativity on the long-term growth and margin prospects for this business. While recent ownership news has buoyed stock performance (+15% since the news event), we still see a compelling risk-reward opportunity," UBS said in the note.

Despite increased promotional costs and rising expenses, Ulta's long-term outlook remains positive, supported by strategic investments, operational improvements, and expansion into Mexico, UBS said.

"Net, we see a combination of a company with exposure to a high product margin category, a channel that is taking structural share, and margin drivers that did not exist several years ago. This, coupled with a discounted valuation, sustains our positive view," UBS said.

UBS has a buy rating on Ulta Beauty ( ULTA ) with a 12-month price target of $550.

Price: 383.83, Change: +14.78, Percent Change: +4.00