Will Coty Stock Be Helped by Personal Care Business Acquisition?

Coty announced this morning that it is acquiring the beauty and personal care business from Brazilian company Hypermarcas for approximately $1 billion.
By Amanda Schiavo ,

NEW YORK (TheStreet) -- Beauty products manufacturer Coty Inc. (COTY) - Get Report announced this morning that it is acquiring the beauty and personal care business from Brazilian company Hypermarcas for approximately $1 billion.

Hypermarcas' beauty business' net revenue as of 2014 was $253.5 million, Coty said. The portfolio the company is acquiring offers brands "that hold leading positions in the highly competitive Brazilian beauty and personal care market."

Brazil's beauty and personal care market is the third largest in the world.

"We expect that the strength of the brands, the impressive leadership team and its robust infrastructure will enhance Coty's competitive position and very much complement our contemplated merger with the P&G Specialty Beauty Business," Coty CEO Bart Becht said in a statement.

Coty is expecting the deal to close by the end of March 2016.

Separately, TheStreet Ratings team rates COTY INC as a Hold with a ratings score of C. TheStreet Ratings Team has this to say about their recommendation:

We rate COTY INC (COTY) a HOLD. The primary factors that have impacted our rating are mixed - some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its impressive record of earnings per share growth, compelling growth in net income and notable return on equity. However, as a counter to these strengths, we also find weaknesses including generally higher debt management risk and premium valuation.

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • COTY INC reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. This trend suggests that the performance of the business is improving. During the past fiscal year, COTY INC turned its bottom line around by earning $0.64 versus -$0.26 in the prior year. This year, the market expects an improvement in earnings ($0.98 versus $0.64).
  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Personal Products industry. The net income increased by 204.5% when compared to the same quarter one year prior, rising from -$20.10 million to $21.00 million.
  • The gross profit margin for COTY INC is rather high; currently it is at 63.63%. It has increased from the same quarter the previous year. Despite the strong results of the gross profit margin, COTY's net profit margin of 2.05% significantly trails the industry average.
  • The debt-to-equity ratio is very high at 2.72 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. To add to this, COTY has a quick ratio of 0.67, this demonstrates the lack of ability of the company to cover short-term liquidity needs.
  • You can view the full analysis from the report here: COTY
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