NEW YORK (TheStreet) -- Shares of Avon Products (AVP - Get Report) fell 4.02% to $7.41 in afternoon trading Monday after the S&P Dow Jones Indices, the company that manages the S&P 500, announced on Friday that the beauty products company would no longer be a part of the S&P 500 after the close of trading on Friday, March 20.
The cosmetics company, which has been one of the worst performing stocks on the S&P 500 for the last few years, will move to the MidCap 400 index after 50 years as part of the S&P 500.
Avon is now worth approximately $3.2 billion. Hanesbrands (HBI), which has a market value of approximately $13.5 billion, will replace Avon in the S&P 500.
The loser that makes way for Hanes? One of the worst companies I have come across, the totally bedraggled, confused and troubled Avon. I have to admit that when Sheri McCoy came over from Johnson & Johnson (JNJ), I thought the company's woes could be solved. But it sure doesn't seem that way. The last quarter was a distinct disappointment, acknowledged by the CEO to have progress "that was slower than I would have liked." Total revenue decreased 12%, but to be fair, this one is uniquely disadvantaged by the strong dollar because it would have been actually UP 5% ex-currency. Of course, the issue is when you have that much currency movement is that you have to say, "wow, that's still horrendous despite the adjustment." Cash flow of from operations for 2014 declines a massive $180 million and Avon had to pay $68 million to the Justice Department as part of a settlement for Foreign Corrupt Practices Act violations. The company's projections for 2015, plus its $1.6 billion in debt, makes this a nightmare for any portfolio manager.
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Shares of Avon are under pressure as it is being moved from the S&P 500 to the MidCap 400, after 50 years on the big benchmark. Hanesbrands will replace Avon after the close on March 20. Options flow suggests longer-term bearishness as 25,300 - lot of July 5 puts on the cosmetics company trades for $0.175 when the market was $0.15-$0.25, says Henry Schwartz, President of Trade Alert. A seller is possibly opening a new position and is a willing buyer of the stock for $5 if shares fall below that strike through mid-July.
This stock's chart is very challenging here and should be considered an avoid. While we are deeply oversold and probably due for a bounce we can see the resistance line is strong and repels any rally attempt since last fall. Sellers have been active as seen in the volume bars, each time resistance is hit the stock is distributed. Relative strength is overdone here but again this would not be a buy candidate. A MACD sell signal is in place as well from a week ago.
Separately, 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 number of negative factors, 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, weak operating cash flow and generally disappointing historical performance in the stock itself."
You can view the full analysis from the report here: AVP Ratings Report