Coty Would Gain Restoration Of Supply Levels, Encouraging Competitor Signals - Analyst Ahead Of Q1

RBC Capital Markets analyst Nik Modi reiterated the Outperform rating on Coty Inc. COTY, with a price target of $14.00.

In the quarter to be reported, COTY will be able to cross the consensus bar this quarter owing to the restoration of supply levels back to the mid-90s and generally positive read-throughs from competitors on fragrance and makeup performance, according to the analyst.

Modi adds that a guidance raise intra-quarter and a steady % share of spend in fragrance should aid quarterly performance. COTY is one of very few staples companies raising guidance at or between quarters.

This apart, management's consistent track record of beating expectations is a positive.

The analyst mentions Estee Lauder Companies, Inc.'s EL results from 11/1 that showed weakness in China, but COTY's exposure to the region is still low, and the company will likely continue to benefit given the continued expansion into mainland China and Asia travel retail.

Coty's management team has earned its credibility by delivering consistent results over the last three years despite many headwinds, including macro pressures, component shortages for the company's key fragrance business, etc, Modi writes. 

As the leverage ratio continues to decline and Coty continues to deliver on its guidance, the analyst says that investors will become increasingly interested in coming off the sidelines. 

For the first quarter to be reported, the analyst expects COTY to record EPS of $0.18 with $1.574 billion in revenue. 

On the positive side, the analyst sees ample opportunities for COTY to continue growing its brands through category, distribution, and geographic expansion, as well as innovation. 

Price Action: COTY shares are trading higher by 2.54% to $9.88 on the last checked Friday.