Coty Inc COTY’s in-line third-quarter results and “uninspiring” commentary prompted a sharp sell-off this week and reinforced one analyst's disengagement from the beauty product manufacturer's stock.
The Rating
Deutsche Bank analyst Faiza Alwy downgraded Coty from Buy to Hold and cut the price target from $21 to $13.
The Thesis
Four factors that previously justified Deutsche Bank's bullishness are no longer in play, Alwy said in a note:
- The earlier thesis assumed a sales decline in the consumer beauty segment would stabilize through successful relaunches of CoverGirl, Clariol and other brands.
- At the same time, ALMEA’s white space distribution opportunities and tailwinds in China were forecast to drive long-term organic growth.
- Coty’s operating profit and bottom line were also modeled to rise on synergies from the purchase of Procter & Gamble Co PG’s specialty beauty segment.
- Accelerating free cash flow was seen to support acquisitions in high-growth categories.
Price Action
Coty shares were down 0.93 percent at $14.36 at the time of publication Friday afternoon.
Related Links:
Deutsche Bank Likes Estee Lauder After 'Exceptionally Strong' Quarter
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