On Monday, Jefferies upgraded Coty Inc . (NYSE: NYSE:COTY) stock, a global beauty company, from Hold to Buy, increasing the price target to $12.00 from the previous $11.00.
The firm identified a compelling opportunity to invest in the company, citing its current valuation and strong position in the premium fragrance market, which accounts for 55% of Coty's product mix.
The upgrade comes as Coty's stock has experienced a 28% decline year-to-date. Jefferies highlighted several factors supporting the more optimistic outlook. These include the robust performance of the premium fragrance sector, Coty's minimal exposure to the Chinese market and Travel Retail, and the company's consistent growth algorithm of 6-8%.
Jefferies expressed confidence in Coty's strategy to expand its prestige product line and to increase its presence in underpenetrated markets. The firm's analysis suggests that Coty is trading at less than 10 times its earnings before interest, taxes, depreciation, and amortization (EBITDA), which they consider to be a very attractive valuation.
The price target adjustment to $12.00 reflects Jefferies' belief in Coty's potential for growth and market expansion. The firm's stance is that the current market conditions present a unique buying opportunity for investors interested in the beauty sector.
In other recent news, Coty Inc. has formed its first Scientific Advisory Board to guide the company's skincare research and development. This strategic move aims to enhance Coty's leading position in skin science.
The beauty company has also reported its fourth-quarter results, with a modest revenue increase of 0.9%, slightly missing the anticipated 1.8% growth. Despite this, like-for-like sales grew by 5%, and adjusted EBITDA reached $164.5 million, slightly surpassing their guidance.
However, adjusted earnings per share came in at a loss of $0.03, missing estimates. Coty has forecasted a 6-8% growth in like-for-like sales for the first half of fiscal year 2025.
Amid these developments, analyst firms TD Cowen and Canaccord Genuity maintained a Buy rating on Coty, while DA Davidson raised their EBITDA growth expectations for Coty in fiscal year 2025 to 10%. Stifel maintained a Hold rating but lowered the share target, and Citi reaffirmed its Neutral rating.
InvestingPro Insights
Recent data from InvestingPro provides additional context to Jefferies' upgrade of Coty Inc. (NYSE: COTY). Despite the stock's 28% year-to-date decline mentioned in the article, InvestingPro data shows a slightly less severe 1-year price total return of -14.79%. This suggests some resilience in Coty's stock performance over a longer timeframe.
Aligning with Jefferies' positive outlook, an InvestingPro Tip indicates that net income is expected to grow this year, potentially supporting the firm's bullish stance. Moreover, Coty boasts impressive gross profit margins, with InvestingPro data revealing a robust 64.39% gross profit margin for the last twelve months as of Q4 2024. This strong margin aligns with the company's focus on premium fragrances and prestige products highlighted in the article.
However, investors should note that Coty is trading at a high earnings multiple, with a P/E ratio of 102.99. This valuation metric contrasts with Jefferies' view of Coty as attractively valued, suggesting potential risks alongside the growth opportunities. For a more comprehensive analysis, InvestingPro offers 7 additional tips for Coty, providing investors with a broader perspective on the company's financial health and market position.
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