Coty IPO Ignored By Men

NEW YORK ( TheStreet) -- It's the third-biggest IPO of the year, but the market seems to have practically ignored Coty Inc. The cosmetics giant is scheduled to go public with a billion dollar offering this week and yet the deal has attracted less attention than other smaller companies.

Demand is said to be strong, but the buzz is not. Male traders and portfolio managers are just not that interested in a perfume and makeup company, even if it is a billion dollar deal.

If you mention the name Coty to male market players, most draw a blank. They know it's a makeup company, but they can't name one product it makes. Say OPI nail polish to a man, and again, blank stare. But say that to a woman and you get instant name recognition. Every nail salon has rows and rows of OPI nail polish. Coty owns OPI.

You can repeat the same game with the philosophy hope in a jar product. This is a brand women know - men not so much. Coty also owns philosophy skin care products. The brand goes back so far that most women can even recall their mothers or grandmothers owning a container of Coty powder. David Faber of CNBC said that until the company attempted to buy Avon ( AVP), it wasn't known. Seriously? Maybe Mr. Faber didn't know the company, but women knew it.

The company was created in 1904 and has experienced periods of financial strength, as well as years of struggle. It was sold in 1992 to the German company Benckiser Consumer products, which embarked on an ambitious plan to acquire more cosmetic labels to assemble a beauty powerhouse. In 2010 alone, Coty acquired philosophy, OPI and the Chinese company TJoy. Last year, Coty did consider buying Avon as Mr. Faber mentioned, but eventually dropped the idea. Faber characterized it as a failure on Coty's part. While Avon did reject an offer by Coty, Coty refused to raise its price and did not pursue the company further after looking at the books.

Coty achieved net revenue of $4.6 billion in 2012 and has enjoyed an annual growth rate of 16% since 2010. Some investors may be turned off by the operating loss of $210 million in fiscal 2012, but during this time the company generated cash flow of $589 million. The loss was a result of charges related to trademark issues, as well as goodwill issues related to some of the 2010 acquisitions. For example, some TJoy executives left immediately after Coty came in and caught the company off guard, and revenues came in lower than expected. In the case of philosophy, the global expansion ran into some snags with product registrations in certain markets. While those problems seem to be getting worked out, there are definitely reasons to be lukewarm towards Coty.

However, Coty is number one in nail care and has a number two global market position in fragrance. They are growing quickly in color cosmetics with the number two position in Europe and number five in the U.S. The company has huge opportunities to grow into new and emerging markets, improve its distribution and better manage its cash. It has proven itself as an innovator with the Lady Gaga Fame perfume - the first black perfume to become invisible once airborne. Ralph Macchio, chief scientific officer at Coty, keeps his chemists busy inventing new takes on old products. So this would seem to be an IPO that would get as much attention as SeaWorld's ( SEAS) or SolarCity's ( SCTY), but it's only received a passing mention amongst market watchers and has even been dismissed outright by CNBC anchors.

It's not as if cosmetics companies haven't performed well. Estee Lauder ( EL) is up 24% for the past year, Revlon ( REV)is up 33%, and L'Oreal ( LRLCY) is up 45% over the same period. Estee Lauder has a market cap of $16 billion and 23 analysts following it, while Revlon is similar in size to Coty with a $1 billion market cap and it only has two analysts. Coach ( COH) is a similar size to Estee Lauder, but it has twice the amount of analysts, 39, covering it. Solar City has the star power of Elon Musk and while it is a little larger than Revlon, with a $2 billion market cap, the company has 8 analysts following it.

How bad is it? Well, strip club Rick's Cabaret ( RICK) has only an $81 million market cap, but manages to have an analyst. Calloway Golf ( ELY) comes in with a market cap of $469 million, but a posse of nine analysts. Boston Beer ( SAM) has a $2 billion market cap and it has 7 analysts. The global cosmetic market generates $243 billion in revenue each year with annual growth of 3%. Golf only delivers $25 billion in annual revenue. Most analysts are men, so it follows that they prefer to cover companies that are familiar and comfortable. The percentage of women that are Chartered Financial Analysts is only 20%.

Admittedly Coty has had some stumbles ahead of its IPO, but the future looks very bright. Coty will probably have a tough time getting analysts' attention, but investors that know cosmetics will smell the cash that comes from Coty.

--Written by Debra Borchardt in New York.

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