Jefferies Reiterates Buy Rating on Avon Products (AVP)

Jefferies & Co. is out with an analyst note this morning, where they reiterate their Buy rating on shares of Avon Products AVP; they have a $43.00 price target on the stock. Jefferies said, “We believe the recent currency devaluation in Venezuela will be about a -$0.07 per share drag to 2010E EPS vs. 2009E, +/- $0.01-$0.02 depending on how long it takes to recapture pricing; currently mgt is lagging on pricing in an effort to increase share during this period of dislocation. We also note that the closing of the parallel exchange market is essentially a non-event for AVP, so we view the situation in Venezuela as largely known and contained, barring further official devaluations. Only 7% of AVP's cash is in the country, and it is comfortably able to finance non-Bolivar sourcing temporarily via other AVP subsidiaries if necessary.” Meanwhile, organic growth rates have been in the upper single digits, and margins should benefit from having a larger portion of its cost saving initiatives fall to the bottom line now that investments in advertising and the Representative Value Proposition (RVP) have nearly reached scale. Jefferies noted, “Assuming a 20% incremental operating margin on our +9% organic sales growth forecast, we look for 2010E organic EPS growth in the mid-teens, contributing +$0.29 p/s. In addition, if the company delivers on its cumulative target of $875 mil in savings and benefits from its restructuring and alphabet soup initiatives in 2010E on top of the $635 mil in 2009, that's an additional +$0.36 p/s benefit to 2010E ongoing EPS.”