Coty upgraded as stock valuation hit ‘rock bottom’ last year

  • Written by MarketWatch
  • Published in Economics

Coty Inc.’s stock was so bad last year, it’s unlikely to get much worse this year.

That may not sound like a ringing endorsement of the beauty-products company, which brands include Covergirl, Clairol and Max Factor, but it’s enough for J.P. Morgan analyst Andrea Teixeira to recommend investors stop selling.

Teixeira raised her rating on the stock to neutral, after being at underweight since March 2017, citing “rock bottom” valuation. Teixeira said a sum-of-the-parts analysis suggests “limited downside from current levels” over the next year.

The stock COTY, +5.30%[1] shot up 5.3% in morning trade Friday, to pace all gainers in the consumer staples sector XLP, +1.81%[2] It has climbed 9.0% so far this year, and has soared 17% since it closed at a record low of $6.11 on Dec. 24.

Coty’s stock was the biggest loser in the S&P 500 index in 2018, as it plunged 67% while the S&P 500 SPX, +3.51%[3] slipped 6.2%. The weakness stemmed from challenges in its consumer beauty segment and from disruptions in the supply chain[4].

See related: The best and worst stocks of 2018[5].

“We believe that new management will rebase expectations for investors within the coming quarters, and unveil a vision for how to drive growth at Coty again,” Teixeira wrote....

imageFactSet, MarketWatch
In November, Coty announced that Camillo Pane had resigned as chief executive officer[6] for family reasons, after a little over two years in the role. The company named Pierre Laubies as the new CEO. One possible scenario that investors may cheer is the sale of part or all of the consumer beauty business, which would allow the company to focus on its higher growth, higher return businesses. Teixeira warned investors, however, that it’s still too early to buy, as she said more bad news is likely. Therefore, she said it was prudent for investors to just remain on the sidelines, for now. “While we believe any positive news could get the shares moving in the right direction if investors believe that the worst is behind the company, we are concerned that it is not all good news ahead, and the likely volatility is why we are moving to a neutral rating,” Teixeira wrote in a note to clients. Among the bad news that is likely coming, first is that trends in Coty’s consumer beauty

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