Friday, Goldman Sachs initiated coverage on Coty Inc . (NYSE:COTY) with a Neutral rating and a price target of $9.00. The financial institution's reasoning behind the rating is a mix of positive and negative factors influencing the company's performance.
The prestige fragrance business of Coty has been noted for its strength, while concerns have been raised regarding the Consumer Beauty division and, to a lesser extent, the China/Asia Travel Retail sector. According to InvestingPro data, the company maintains impressive gross profit margins of 65%, though it currently trades at a relatively high P/E ratio of 42.
The recent guidance downgrade in the past quarter is believed to have affected investor confidence negatively, reflected in the stock's 25% decline over the past six months. Despite these challenges, Goldman Sachs sees potential for Coty in the long term as the company aims to streamline its operations, accelerate its innovation cycle, and enhance its social media marketing strategies. The company has maintained revenue growth of 5.9% over the last twelve months, suggesting some operational resilience.
The analyst highlighted three specific areas of interest for a better understanding of Coty's future prospects: the impact of US channel disruptions on Coty's mass and prestige businesses, the steps and timing needed to rejuvenate Coty's portfolio of iconic mass cosmetics brands, and the strategy to return to a +6-8% like-for-like (LFL) sales growth.
Proprietary data from HundredX on consumer purchase intent and net promoter scores indicate that CoverGirl, one of Coty's brands, is falling behind its beauty industry peers. This suggests that CoverGirl is struggling to receive the consumer endorsements necessary to stand out in a competitive market.
Goldman Sachs's neutral stance reflects a cautious optimism, acknowledging Coty's opportunities for improvement and growth while also recognizing the current challenges that may temper near-term rewards.
Based on InvestingPro's comprehensive analysis, the stock currently shows potential upside from its Fair Value assessment, though investors should note the company's current ratio of 0.85 indicates some liquidity constraints.
In other recent news, Coty Inc. reported Q1 earnings and revenue that slightly missed analyst expectations, posting adjusted earnings per share of $0.15 and a 2% year-over-year revenue increase to $1.67 billion.
The company's Prestige segment saw a 5% increase in revenue, while the Consumer Beauty segment experienced a 3% decline. The company has revised its full-year earnings guidance for fiscal 2025, predicting earnings per share to fall in the range of $0.54 to $0.57, down from the previous forecast of $0.56 to $0.60.
Following these developments, DA Davidson has revised its price target for Coty's shares to $12.50 from the previous $14.50, maintaining a Buy rating. Barclays (LON:BARC), however, has downgraded Coty's stock rating from Equal Weight to Underweight, citing concerns about the company's strategic direction and its ability to meet financial objectives.
In other company news, Coty's annual shareholders meeting resulted in the election of all twelve director nominees and approval of an advisory resolution on the compensation of Coty's named executive officers. Despite the lowered earnings and revenue, Coty maintains its free cash flow growth forecast in the low to mid $400 million range for fiscal 2025 and continues to aim to reduce leverage to below 3x by the end of 2024.
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