Sector Snap: Cosmetics Companies

NEW YORK (AP) — An analyst began coverage of cosmetics and personal care companies Thursday, saying they face a tough year but remain attractive long-term investments driven by aging populations and developing markets.

Stifel Nicolaus & Co. analyst Mark Astrachan gave Avon Products Inc., Alberto Culver Co., and Nu Skin Enterprises Inc. "Buy" ratings, and Estee Lauder Cos. and Bare Escentuals Inc. "Hold" ratings.

Astrachan said 2009 will remain difficult for the cosmetic industry, but results should improve sequentially from a bottom in the first quarter. In the long term, Astrachan said the sector remains an attractive area of growth, as populations age and developing markets grow.

"We believe aging populations are a driving force behind growth in skin care, particularly since spending increases with age," Astrachan wrote in a client note.

Astrachan said more discretionary items like hair care and fragrance items remain pressured.

Astrachan said Avon is poised to record cost savings from restructuring plans and expects Latin America — the company's largest market — to remain a bright area of growth, helped by improvement in Mexico and continued momentum in Brazil. Avon is a direct-seller, meaning that it markets and sells its goods directly to consumers without a fixed retail location.