New Strategy, Resumed Coverage On Coty
Coty Inc (NYSE: COTY) has seen a more than 45 percent increase in its share price year-to-date.
Morgan Stanley’s Dara Mohsenian has initiated coverage of Coty with an Equal-Weight rating and price target of $31.
The company’s has signed a definitive agreement with Procter & Gamble Co. (NYSE: PG) to merge a part of the latter’s beauty assets with Coty.
The transaction, signed in July, was structured as a tax-free Reverse Morris Trust transaction and is expected to create the third-largest beauty company in the world, “with pro forma sales of ~$10 billion in the ~$300B global beauty industry,” according to the Morgan Stanley report.
Related Link: Procter & Gamble's Discount Expected To Continue
Mohsenian also believes that this transaction would help diversify Coty away from the fragrance segment, while offering greater geographic, channel and sub-category scale, thereby meaningfully improving its partnerships with retailers.
However, topline is expected to continue to be constrained due to the company’s “sub-optimal business mix,” compared to its “structurally higher-growth beauty peers.” Also, given that the business that Coty is acquiring from Procter & Gamble has been declining in recent times, the company would need to work on reinvigorating the business.
On a more positive note, Coty’s offers strong visibility into its ability to continue to drive robust profit growth, given the company’s existing cost savings program. In addition, management has a strong focus on productivity and is willing to use the balance sheet to create shareholder value via accretive acquisitions and share buybacks.
Latest Ratings for COTY
Sep 2015 | Morgan Stanley | Assumes | Equal-weight | |
Jul 2015 | Deutsche Bank | Maintains | Buy | |
Jul 2015 | Wells Fargo | Downgrades | Outperform | Market Perform |
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