ANALYSTS’ RATINGS PUSH REVLON SHARES UP TO 28
NEW YORK — Shares of Revlon Inc. rose 7/8 to 28 on the New York Stock Exchange Monday after several underwriters initiated coverage of the cosmetic firm with “buy” ratings.
The stock went public Feb. 28 at $24 a share.
Merrill Lynch & Co., lead underwriter in Revlon’s initial public offering of 7.5 million shares, projecting strong top line and market share growth, placed an immediate-term “accumulate” and long-term “buy” on Revlon shares. The Merrill report also noted improving margins and predicted growth in earnings before interest, taxes, depreciation and amortization.
Three other underwriters involved in the late-February IPO — Bear Stearns & Co., PaineWebber and CS First Boston — also started coverage of Revlon stock Monday, two with “buy” ratings and PaineWebber with an “attractive” rating.
In their research report, Merrill Lynch analysts Deepak D. Raj and Douglas M. Lane said, “The company has been gaining significant share of the U.S. color cosmetics market and has prospects for continued double-digit top line growth.”
The analysts noted, “The Revlon brand’s share of the $2.3 billion mass color cosmetics market climbed 19.9 percent in 1995, up more than four share points in two years, making Revlon the fastest growing brand in the market.” Revlon’s margins are improving “substantially” despite increased expenses for advertising and promotion, the analysts added. “Revlon’s top management has clearly displayed excellent operating results despite a leveraged balance sheet.”
According to the report, after the recent offering, Revlon’s pro forma balance sheet for December 1995 showed $1.3 billion of debt and negative shareholders equity of $536 million. These factors have led to a Merrill Lynch “high risk” rating on the stock.
However, the report noted that Revlon’s earnings before interest, taxes, depreciation and amortization rose 21 percent in 1995 and it expects it to grow by more than 25 percent in 1996.
Merrill Lynch looks for sales growth to accelerate 14 percent this year, driven by continued strong growth in U.S. self-select cosmetics, further double-digit gains in Consumer International and mid-teens growth in Professional. It also expects sales to be lifted by a full year benefit from Creative Nail, which was acquired last December. “Revlon…is currently driving the growth in the U.S. color cosmetic category by trading consumers up to higher-priced value-added new products and then following through with aggressive, effective marketing programs,” the report said.
Bear Stearns also started the company with a “buy” rating, citing greater market share, with the aid of increased advertising.
Analyst Constance M. Maneaty, has a 12-month $32 price target on Revlon. In the Bear Stearns report, Maneaty said Revlon has appointed management executives who are experienced in product development.