Coty Jumps After Boost to Buy at Citi on Growth Outlook

Coty can 'pick a lot of low hanging fruit in terms of accelerating growth, improving margin and deleveraging,' Citi said, lifting the shares to buy.
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Coty  (COTY) - Get Report shares jumped on Thursday after Citigroup analyst Wendy Nicholson raised her rating on the beauty retailer to buy from neutral and more than doubled her share-price target to $10 from $4.50.

The New York company can “pick a lot of low hanging fruit in terms of accelerating growth, improving margin and deleveraging its balance sheet,” she wrote in a commentary cited by Bloomberg.

Coty shares recently traded at $6.02, up 13%; they've traded on Thursday up as much as 20% at $6.35. The shares remain down 45% year to date.

Nicholson said that some are wary of Coty's leverage, track record and likely thinner margins, The Fly reported.

But she also has shifted her valuation metrics to a multiple of total enterprise value to the past fiscal year's sales from the price-to-earnings multiple, Bloomberg reports. 

That’s because “several variables” make earnings predictions for Coty “very difficult right now,” she said. Those include cost-savings delivery, reinvestment spending and margins.

Last week, Morningstar analyst Rebecca Scheuneman also offered positive commentary about Coty.

“We increase our fair value estimate for no-moat Coty, which had been under review, to $5.50 from $4.54,” she wrote.

“In its September-ending first-quarter fiscal 2021, Coty exhibited sales recovery from the pandemic much faster than we anticipated and achieved permanent cost reductions that were more meaningful than we expected. 

"While Chief Executive Sue Nabi has only been at the helm a few months, we are impressed with the degree to which her strategies have stabilized the business.

“Her plan to focus initially on the areas of the business that are more resilient during the pandemic, such as health-oriented beauty, skincare, direct-to-consumer, and Asia, are bearing fruit.”