Value stocks, favored by legendary investors like Warren Buffett, are shares that trade below their intrinsic value. These stocks can reward investors' patience over the long haul as the market recognizes their worth.

While Berkshire Hathaway (BRK.A) (BRK.B) cut the bulk of its stake in the retailer during Q3, one notable value stock in the consumer discretionary sector is Ulta Beauty (ULTA), which recently drew investors' attention following its stellar Q3 earnings performance. Currently trading at a discount to its historical valuations - and operating in a famously recession-resistant niche - ULTA stock presents a compelling opportunity for investors in search of value as the major equity benchmarks linger around record highs.

Let’s explore why this value stock could deliver significant returns in the long run.

About ULTA Stock

Founded in 1990, Ulta Beauty (ULTA) is a leading cosmetics and beauty retailer offering over 25,000 products across 600+ brands, along with in-store beauty treatments. Ulta differentiates itself from competitors like Sephora through its focus on value-oriented offerings and a member rewards program intended to build loyalty and engagement. Previously, the company has said that 95% of sales flow through its loyalty program.

The company’s growth strategy focuses on store expansions and digital enhancements. Ulta opened 28 new locations in Q3, bringing its total to 1,437. 

Valued at $19.9 billion, ULTA stock has declined over 12% year-to-date, underperforming the broader market's gains. The company faces multiple headwinds, including increased competition in the prestige beauty category and a challenging consumer environment.

Ulta Reports a Beat & Raise Quarter

Ulta Beauty shares popped about 9% on Dec. 6 after the retailer reported stronger-than-forecast fiscal Q3 earnings. Earnings per share came in at $5.14, surpassing the $4.52 consensus estimate, while revenue of $2.53 billion also edged past projections of $2.50 billion - driven primarily by contributions from new stores, as same-store sales rose just 0.6% to 4.5%. However, that modest growth outpaced estimates for a drop of 2.0% in same-store sales.

The loyalty program hit a record 44.4 million active members, up 5% year-over-year. Fragrances stole the show with high single-digit growth and exclusive brand launches alongside slicker online features, keeping ULTA ahead in a competitive beauty market.

Along with beating Q3 estimates, management raised its full-year guidance - a time frame that includes the closely watched holiday season. Ulta now expects fiscal 2024 revenue in the range of $11.1 billion to $11.2 billion, raising the low end of its guidance from a previous $11.0 billion. Likewise, 2024 earnings per share are projected between $23.30 and $23.75 per share, up from the previous forecast of $22.60 to $23.50. By comparison, Wall Street was targeting full-year sales of $11.17 billion on $23.13 per share.

Plus, Ulta raised the low end of its same-store sales forecast, now projecting a decline of 1% to flat. The consensus was targeting a decline of 0.78%.

During Q3, Ulta repurchased 731,458 shares of its common stock worth $267.0 million, bringing the total to $764.5 million for the first nine months of 2024. The company has $2.9 billion remaining under its $3.0 billion share repurchase authorization, and plans to buy back approximately $1 billion total in fiscal 2024.

The retailer ended the quarter with cash and cash equivalents of $177.8 million, while short-term debt totaled $199.7 million.

Is ULTA Stock a Good Buy Right Now?

Analysts remain optimistic about ULTA, with the stock holding a consensus "Moderate Buy" rating. Of the 28 analysts covering the stock, 12 have issued a "Strong Buy," one assigns a "Moderate Buy," 13 rate it as "Hold," and two recommend a "Strong Sell."  

The average 12-month price target for ULTA is $444.60, which suggests the stock could rise 3.6% from current levels. The Street-high price target is $510, representing a premium of 18.9%.

At current levels, ULTA stock looks reasonably priced. The shares are valued at 1.78 times forward sales and 18.22 times forward adjusted earnings, marking a healthy discount to its historical average multiples of 2.13x and 29.78x, respectively. 

Overall, Ulta Beauty's solid fundamentals, appealing valuation, and strong growth initiatives make it an attractive investment for investors in search of discounted stocks to buy this holiday season.