Coty stock price target cut to $9 at Raymond James

On Wednesday, Raymond (NSE:RYMD) James maintained an Outperform rating on Coty Inc . (NYSE:COTY) but reduced the price target to $9 from the previous $10. This adjustment follows Coty’s reported second-quarter sales that fell short of expectations, with like-for-like (LFL) sales declining by 1% year-over-year, contrary to Raymond James’ estimate of a 2% increase and the consensus forecast. The stock, currently trading at $6.14, has experienced significant pressure, falling nearly 10% in the past week and touching its 52-week low of $6.13. InvestingPro analysis reveals multiple factors affecting the stock’s performance, with 12+ exclusive ProTips available for subscribers.

Coty’s Prestige Fragrance segment showed resilience with high single-digit growth, even against tougher comparisons. However, the overall performance was dampened by weaker trends in China, Travel Retail Asia, and Australia, as well as in the Consumer Beauty segment, particularly in the U.S. market. Additionally, the company has experienced slower replenishment from retailers. Despite these challenges, the company maintains impressive gross profit margins of 65.4%, according to InvestingPro data, demonstrating strong pricing power in its core segments.

Despite the lower top-line results, Coty’s cost improvement initiatives have been effective, softening the impact of decreased sales. This has led to gross and operating margins surpassing expectations for the fiscal second quarter. Coty’s earnings per share (EPS) stood at $0.22, excluding an $0.11 loss from the mark-to-market of its equity swap, aligning with Raymond James’ estimate and slightly exceeding the consensus by $0.01.

However, Coty has revised its outlook for fiscal year 2025, acknowledging a deceleration in the beauty category and slower retail reordering, which may extend into fiscal year 2026. The beauty industry has seen a slowdown after years of outperformance, and Coty is not exempt from these challenges.

Despite near-term volatility, Raymond James highlights that Coty’s Prestige Fragrance continues to be a strong point for the company. The firm also anticipates potential for market share growth, driven by new product innovations, geographic expansion opportunities, and Coty’s relatively lower exposure to the challenging Chinese market, which accounts for only 3% of its sales.

At present, Coty’s valuation stands at 7.78 times EV/EBITDA based on the latest twelve months’ data, according to InvestingPro metrics. This positions Coty at the lowest multiple among its peers, even though its growth is currently in the middle of the group. The lowered price target to $9 reflects these market conditions and the anticipated deceleration in the beauty sector. InvestingPro’s comprehensive Fair Value analysis suggests the stock is currently undervalued, with detailed valuation insights available in the Pro Research Report, part of the extensive coverage of 1,400+ US equities on the platform.

In other recent news, Coty Inc. experienced a series of financial developments. Moody’s (NYSE:MCO) Ratings upgraded Coty’s Corporate Family Rating (CFR) to Ba1 from Ba2, citing the company’s successful efforts in reducing financial leverage and strengthening its balance sheet. This improvement was achieved through debt repayment funded from free cash flow and asset sales, with the company aiming to further reduce net debt-to-EBITDA to 2.0x by the end of 2025.

However, DA Davidson reduced Coty’s stock price target from $12.50 to $12.00, following a decrease in organic sales by 1% in the second fiscal quarter of 2025. This change led to a revision of Coty’s organic sales forecast for the second half of fiscal year 2025, now expecting a decrease of 1-2% year-over-year.

Coty’s second quarter earnings and revenue fell short of analyst expectations, with the company reporting adjusted earnings per share of $0.11 and revenue of $1.67 billion. This was due in part to a slowdown in the mass beauty market and headwinds in the Asia Pacific region. Despite these recent developments, Coty maintains its full-year adjusted EPS guidance of $0.50-$0.52.

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