Coty Poised For Continuous Growth: Analyst Anticipates Third Year Of Surging Sales And EBITDA

DA Davidson analyst Linda Bolton Weiser reiterated a Buy rating on the shares of Coty Inc COTY and raised the price target from $15 to $17.

Coty reported first-quarter FY24 sales growth of 18% year-on-year to $1.64 billion, beating the consensus estimate of $1.58 billion. Adjusted EPS was $0.09, missing the consensus estimate of $0.17.

E-commerce sales were up more than 25% Y/Y in both Prestige and Consumer Beauty and e-commerce now represents close to 20% of total sales.

To facilitate ownership by European investors and to build liquidity in Europe, Coty issued 33 million shares in a well-oversubscribed transaction, says the analyst.

In Q3, Coty expects to repurchase 27 million shares in the first phase of its equity swap, resulting in negligible dilution exiting FY24, adds the analyst.

Operating cash flow in Q1 was $186 million versus $163 million last year and the company ended the quarter with a net leverage ratio of 3.8x.

Organic sales in Consumer Beauty were +10% versus +12% in F1Q23, which was in line with the global mass beauty market, notes the analyst.

The analyst writes that growth accelerated in Coty's mass fragrance business, and in core color cosmetics, the market continued to premiumize, with higher price point products outperforming.

After being down Y/Y in 2 of the last 3 quarters, gross margin should now benefit from easing COGS inflation, with Y/Y expansion expected in H2FY24, says the analyst.

FY24 should be the third consecutive year of double-digit organic sales growth and EBITDA growth of 8% or higher, making Coty a premier company in the beauty space, the analyst remarks.

Price Action: COTY shares are trading higher by 1.01% at $10.02 on the last check Wednesday.