Bare Escentuals started at 'Outperform'

Jon Andersen said in a research note the company's multichannel marketing model gives it numerous ways to grow sales. Bare Escentuals sells its signature mineral-based cosmetics line through infomercials and on home shopping TV channels, in its own boutiques and at specialty stores like Ulta and Sephora. As a result, its operating margins exceed 30 percent.

The San Francisco-based company reported earlier this month its first-quarter sales and profit both rose by double digits, and earnings per share topped the average analyst estimate by 2 cents. Bare Escentuals also reiterated its financial targets for the full year. The company went public in September 2006.

Andersen believes Bare Escentuals will continue to post strong sales in part because it only has a modest share of the overall cosmetics market. The company is expanding beyond cosmetics into skincare, and it's also adding markets overseas in Europe and Asia.

"Consumer demand may fluctuate with macroeconomic conditions," Andersen wrote. "However, as relatively 'affordable luxuries' (a jar of Bare Escentuals foundation retails for $25 and lasts six months) with important user benefits and high customer loyalty, cosmetics should provide a stable recurring revenue stream for the company."

In afternoon trading, the company's shares rose 32 cents to $20.09. The stock is down 18 percent in the year to date and traded at a year high of $43.22 last May.