Now that Coty Inc.’s $10.65 billion takeover offer’s gone away, Avon Products Inc.’s stock is going to have to stand on its own — and some see a long road ahead to turnaround.
This story first appeared in the May 22, 2012 issue of WWD. Subscribe Today.
UBS Securities analyst Nik Modi on Monday cut his rating on the stock to “sell” from “neutral,” noting “it will become obvious that any creditable plan to sustainably fix Avon will require a substantial cut to Avon’s midterm [earnings per share] power.”
Modi said Avon’s four “major problems” were “uncompetitive” pay to its representatives, inadequate information technology systems, rising costs in emerging markets and legal issues surrounding foreign bribery allegations.
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“We agree that Avon is fixable,” Modi said. “Looking at other direct sellers — domestically and internationally — it is clear that the direct-selling business model still works, especially for beauty products in emerging markets. And while [the new chief executive officer] Sheri McCoy and [executive vice president] Kimberly Ross seem like capable executives, we believe the issues at Avon will take time and lots of money to fix.”
The analyst has a 12-month target price of $13 on the stock, which fell 1.1 percent to $16.77 Monday.
Avon stood out in what was generally an up market on Monday. The S&P Retail Index rose 0.8 percent, or 4.59 points, to 595.37 as the Dow Jones Industrial Average gained 1.1 percent, or 135.10 points, to 12,504.48.
Shares of American Eagle Outfitters Inc. rose 10.5 percent to $20.33 after ceo Robert Hanson began to make his mark on the company by shuttering the money-losing 77kids concept. Also rising were Michael Kors Holdings Ltd., up 8.4 percent to $40.71; Sears Holdings Corp., 7.3 percent to $56.04; Under Armour Inc., 4.7 percent to $93.21, and PVH Corp., 4.5 percent to $75.98.
In Europe, Frankfurt’s DAX gained 1 percent to 6,331.04 as Paris’ CAC 40 rose 0.6 percent to 3,027.15. However, London’s FTSE 100 fell 0.6 percent to 5,304.48 and the FTSE MIB dipped 0.3 percent to 13,012.04.