Confidence In Avon's New CEO Drives DA Davidson Upgrade, Doubling Of Price Target

Avon Products, Inc. AVP has had a rough run in recent years, falling more than 90 percent. Yet the cosmetics maker's new leadership could drive shares in another direction, according to a newly bullish analyst. 

The Analyst 

D.A. Davidson analyst Linda Bolton Weiser upgraded Avon from Neutral to Buy and doubled her price target from $1.75 to $3.50.

The Thesis

Avon’s new CEO is targeting a 2021 operating margin of at least 10 percent, which would make for significant improvement over 2018’s 6.4-percent mark, Bolton Weiser said in the upgrade note. (See her track record here.) 

“We were impressed with the sense of urgency displayed by new CEO Jan Zijderveld at his first analyst meeting on Sept. 21,” the analyst said. “Unlike the previous CEO, he is engaged in operations, is committed to establishing a culture of accountability and has moved quickly to bring in executives with direct selling experience.”

Zijderveld has prioritized competitiveness, modernization and breakout strategies to expand Avon's customer base, Bolton Weiser said. 

By D.A. Davidson’s calculations, the CEO's turnaround plan could drive earnings before interest, tax, depreciation and amortization from $441 million in 2018 to $670 million in 2022. That, in turn, could drive shares to $8.25 or even $10.50. Bolton Weiser said. 

Avon has near-term risk in forex devaluations and planned changes to the sales representative compensation structure, the analyst said. Forex in particular is seen to stunt quarterly earnings through the first half of 2019.

Long-term, Zijderveld’s management team has earned the analyst’s confidence, she said. 

“We like that he is using start-up methodologies to stem the bleeding in AVP's operations,” Bolton Weiser said. “ ... We think he set reasonable near-term expectations, as his plan calls for only a stabilization of sales and ‘slight’ margin improvement in 2019-2020.”

Price Action

Avon shares were trading down 0.61 percent at $2.42 at the time of publication Monday. 

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