Market Overview

Niche Brands Continue To Threaten The Mass Beauty Industry; Analyst Downgrades Coty

Share:
Niche Brands Continue To Threaten The Mass Beauty Industry; Analyst Downgrades Coty

A near-term recovery for Coty Inc (NYSE: COTY) seems unlikely, according to a new analyst report.

The Analyst

Bank of America analyst Olivia Tong downgraded Coty from Buy to Underperform and lowered her price target from $16 to $10.

The Thesis

Bank of America’s original thesis on Coty centered around the company’s ability to reaccelerate results in undernourished brands like CoverGirl and leverage its Proctor & Gamble Co (NYSE: PG) deal synergies for earnings and reinvestment to drive organic sales growth.

“We no longer hold this view as tenable, as inconsistent execution and mounting disruption across mass beauty weigh on COTY’s ability to drive a turn in its Consumer Beauty division, while tough comps in Luxury and Professional create a high bar for FY19,” Tong said in a note.

The mass beauty industry is being threatened by a host of niche brands that have emerged, and it's not just Coty being affected. L’Oreal Co/ADR (OTC: LRLCY), e.l.f Beauty Inc (NYSE: ELF) and Revlon Inc (NYSE: REV) have all seen organic sales decelerate linearly in recent years, Tong said.

Coty is highly leveraged, meaning the company has little flexibility to deploy additional capital to make acquisitions of many of the niche brands it's threatened by.

“As such, although COTY shares have been pressured and expectations are already low with majority shareholder JAB”s standstill set to expire on 10/3, we would view any short-term upturn in shares as short-live with both earnings and multiple risks ahead,” Tong said.

Price Action

Coty shares fell as much as 3 percent Thursday, but traded down only marginally at time of publication to $11.41.

Related Links:

The Future Of Retail? Stitch Fix, Blue Apron, Birchbox Provide Innovative Alternatives To Traditional Shopping

Ulta Beauty Downgraded By Goldman Sachs As Loyalty Program Growth Slows

Latest Ratings for COTY

DateFirmActionFromTo
Nov 2020CitigroupUpgradesNeutralBuy
Nov 2020DA DavidsonMaintainsNeutral
Oct 2020Morgan StanleyMaintainsEqual-Weight

View More Analyst Ratings for COTY
View the Latest Analyst Ratings

 

Related Articles (COTY)

View Comments and Join the Discussion!

Posted-In: Bank of America Covergirl Olivia TongAnalyst Color Downgrades Price Target Analyst Ratings Best of Benzinga

Latest Ratings

StockFirmActionPT
PMTB of A SecuritiesMaintains18.5
IVRB of A SecuritiesMaintains3.0
EFCB of A SecuritiesMaintains15.5
NYMTB of A SecuritiesMaintains3.5
NLYB of A SecuritiesMaintains8.5
View the Latest Analytics Ratings
Don't Miss Any Updates!
News Directly in Your Inbox
Subscribe to:
Benzinga Premarket Activity
Get pre-market outlook, mid-day update and after-market roundup emails in your inbox.
Market in 5 Minutes
Everything you need to know about the market - quick & easy.
Fintech Focus
A daily collection of all things fintech, interesting developments and market updates.
Thank You

Thank you for subscribing! If you have any questions feel free to call us at 1-877-440-ZING or email us at vipaccounts@benzinga.com