By Mike Yamamoto of OptionMonster
NEW YORK -- Avon Products (AVP) reports earnings Thursday, and the bears are circling.
OptionMonster's tracking programs detected the purchase of almost 34,000 October 11 puts, most of which priced for 35 cents. Volume was more than 200 times the previous open interest in the strike, which indicates that new positions were opened.
Puts lock in the price where investors can sell the cosmetics stock, so they appreciate when shares drop. Traders can use the instruments to hedge long positions or to wager on a drop.
Avon fell 1.21% to $13.02 yesterday and is down 24% on the year. Hurt by declining sales, leadership scandals, and market-share losses, the company is back to levels last seen in early 2000. Yesterday's option trade will profit from that support crumbling.
Some 49,000 contracts traded overall in Avon yesterday, almost 10 times its daily average for the last month. Puts outnumbered calls by a highly bearish 15-to-1 ratio.Yamamoto has no positions in AVP.
TheStreet Ratings team rates AVON PRODUCTS as a Sell with a ratings score of D+. TheStreet Ratings Team has this to say about their recommendation:
"We rate AVON PRODUCTS (AVP) a SELL. This is driven by a few notable weaknesses, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company's weaknesses can be seen in multiple areas, such as its deteriorating net income, generally high debt management risk, disappointing return on equity, generally disappointing historical performance in the stock itself and feeble growth in its earnings per share."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Personal Products industry. The net income has significantly decreased by 1128.5% when compared to the same quarter one year ago, falling from -$13.70 million to -$168.30 million.
- Although AVP's debt-to-equity ratio of 2.96 is very high, it is currently less than that of the industry average. To add to this, AVP has a quick ratio of 0.70, this demonstrates the lack of ability of the company to cover short-term liquidity needs.
- Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Personal Products industry and the overall market, AVON PRODUCTS's return on equity significantly trails that of both the industry average and the S&P 500.
- Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 42.92%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 1166.66% compared to the year-earlier quarter. Turning toward the future, the fact that the stock has come down in price over the past year should not necessarily be interpreted as a negative; it could be one of the factors that may help make the stock attractive down the road. Right now, however, we believe that it is too soon to buy.
- AVON PRODUCTS has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. The company has reported a trend of declining earnings per share over the past two years. However, the consensus estimate suggests that this trend should reverse in the coming year. During the past fiscal year, AVON PRODUCTS swung to a loss, reporting -$0.01 versus $0.21 in the prior year. This year, the market expects an improvement in earnings ($0.80 versus -$0.01).
- You can view the full analysis from the report here: AVP Ratings Report