Jefferies dropped its bearish stance on Avon Products, Inc. AVP Wednesday for valuation reasons, but said the beauty supplier continues to have significant challenges.
The Analyst
Jefferies analyst Stephanie Wissink upgraded Avon from Underperform to Hold with a $1.50 price target.
The Thesis
The rating upgrade is based on valuation and not fundamentals, Wissink said in the note. (See the analyst's track record here.)
While Avon shares have settled into a fair range, they continue to trade down, the analyst said.
New CEO Jan Zijderveld has essentially been doing damage control with the company's neediest areas, Wissink said.
"It's unclear how much of a profit gap improved execution can close in aggregate, but even a small portion is directionally positive," she said.
Increased competition and Avon's lack of restructuring effort is a real threat, according to Jefferies.
“The company lacks the financial flexibility to truly modernize the rep experience. Growing access to value-priced options in makeup and skin care coupled with disintermediation of the 'expert' from rep to influencer continues to threaten AVP's core direct selling model," Wissink said.
Performance slippage and high rep churn will directly impact the pace and degree of Avon's recovery, the analyst said.
Jefferies is watching for Zijderveld's plan of action, Wissink said.
Price Action
Avon shares were trading up 0.69 percent at $1.45 at the time of publication Wednesday.
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