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Investing.com -- UBS analysts see a "compelling path ahead" for Ulta Beauty (NASDAQ:ULTA), highlighting improving market share trends, waning competitive pressures, and a resilient beauty category.

In a new note, UBS said it believes "risk-reward is skewed to the upside" for Ulta shares. The firm pointed to Numerator data indicating that Ulta’s market share is stabilizing.

"Numerator's spending data indicates Ulta's share of the beauty spend captured in its panel was around 14% in February," UBS wrote, compared to 13% in January and 15% in December. UBS also noted that Ulta's year-over-year market share declines "have diminished" in recent months.

UBS further highlighted new disclosures from Kohl’s (NYSE:KSS) suggesting that the Sephora rollout at its stores was "likely even more cannibalistic than the market probably realized." 

However, UBS said this competitive pressure "has likely peaked" and should provide a "more meaningful tailwind" for Ulta moving forward.

The firm also downplayed potential tariff risks, noting that Ulta’s direct import exposure is low and that major brand partners such as Estée Lauder (NYSE:EL) and L'Oréal (EPA:OREP) have "diverse global manufacturing footprints." 

UBS added that prior tariff rounds did not result in "notable price inflation" in the beauty category.

UBS also pointed to Ulta's loyalty program as a competitive advantage, writing that the company has grown its membership base to "44.6m, at a 12% CAGR over the last 10 years." T

he note suggested Ulta’s points-based rewards structure offers more value to customers than competitors like Sephora and Amazon (NASDAQ:AMZN).

At approximately 15 times forward earnings, UBS views Ulta’s valuation as reasonable, writing, "we think it moves higher from here."

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