Avon's Calling, but Will Higher Profits Push Investors to Open the Door?

NEW YORK (TheStreet) -- Lately it's been ugly for shares of Avon Products (AVP). At Monday's close, the stock was at $14.69, down nearly 15% for the year to date and over 29% for the past 52 weeks. It pays a 1.64% dividend yield.

That's not pretty. But if you like "ugly ducklings turning into swans" stories, this may be your stock. Management at the direct seller of cosmetics wants to give you a reason to buy the shares. Yes, the stock is a gamble. But there are a few good reasons investors should consider it.

First, Avon has been working at reducing its costs in the face of lagging sales. Monday the company announced that it will cut another 600 jobs to save on costs. Most of those layoffs will come from its corporate organization and its North American business. Avon had 36,700 employees at the end of 2013.

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Avon is also trying to rebound from an ugly past when the company, under former CEO Andrea Jung, was accused by the U.S. Justice Department of bribing Chinese officials. In 2006, Avon was among the first companies to obtain a license to sell its products directly to Chinese consumers. In May the company agreed to pay a $135 million settlement.

Second, the company has been refocusing on profitable areas and away from soft markets.

In 2012, Sheri McCoy, a former vice chairman at Johnson & Johnson (JNJ) was named CEO. Since taking over the helm, McCoy has refinanced debt and improved overall cashflow. Besides the settlement, she took the company out of unprofitable markets in South Korea, Vietnam and Ireland.

What hasn't changed is Avon's diverse product line of cosmetics, fragrances, fashion, and skin care and home products for women and men. It is one of the world's largest direct sellers, with over 6 million active, independent sales representatives.

Third, Avon has been extending is global reach -- with markets in over 100 countries. Latin America is its largest market, accounting for 50% of its sales. Brazil alone accounts for 20% of sales overall. Africa, Europe and the Middle East together make up 30% of sales. North America and Asia account for the remainder of sales.

There was a time when the Avon Lady was ubiquitous in North America. That is no longer the case. In 2013, Avon had a $48 million operating loss in North America.

Fixing its business in North America is an integral part of McCoy's plan to turn Avon around, starting with hiring Pablo Munoz from Tupperware Brands (TUP) to head the North American Division.

With a market capitalization of $6.49 billion, Avon has estimated 2014 earnings per share of 81 cents and 2015 EPS of 98 cents. In 2008, earnings peaked at $2.13.

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