NEW YORK (TheStreet) -- Shares of Avon Products (AVP - Get Report) were gaining 6.8% to $4.43 on Tuesday, ahead of the beauty products company's third quarter earnings report, which is due before the market opens on Wednesday.
Analysts expect Avon to report earnings of 8 cents a share and revenue of $1.68 billion for the third quarter.
Avon reported earnings of 11 cents a share for the second quarter of 2015, beating analysts' estimates of 8 cents a share. The company reported revenue of $1.82 billion in the second quarter, above analysts' estimates of $1.8 billion.
The beauty products company reported earnings of 23 cents a share in the third quarter of 2014, above analysts' estimates of 17 cents a share. Avon saw revenue of $2.14 billion in the year-ago quarter, compared to analysts' estimates of $2.16 billion.
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 generally high debt management risk, disappointing return on equity, weak operating cash flow and generally disappointing historical performance in the stock itself.
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- The debt-to-equity ratio is very high at 55.23 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. To add to this, AVP has a quick ratio of 0.60, 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.
- Net operating cash flow has decreased to $88.20 million or 16.39% when compared to the same quarter last year. In addition, when comparing the cash generation rate to the industry average, the firm's growth is significantly lower.
- AVP's stock share price has done very poorly compared to where it was a year ago: Despite any rallies, the net result is that it is down by 64.79%, which is also worse that the performance of the S&P 500 Index. Investors have so far failed to pay much attention to the earnings improvements the company has managed to achieve over the last quarter. Naturally, the overall market trend is bound to be a significant factor. However, in one sense, the stock's sharp decline last year is a positive for future investors, making it cheaper (in proportion to its earnings over the past year) than most other stocks in its industry. But due to other concerns, we feel the stock is still not a good buy right now.
- The gross profit margin for AVON PRODUCTS is rather high; currently it is at 63.29%. Regardless of AVP's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, AVP's net profit margin of 1.57% is significantly lower than the industry average.
- You can view the full analysis from the report here: AVP