Citigroup analyst Wendy Nicholson upgraded Coty stock to Buy from Neutral, and sees shares nearly doubling to $10.
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Coty is jumping 12% early Thursday, helped by a bullish endorsement from Citigroup, which believes that the beleaguered beauty products maker’s recent rally has legs.
Analyst Wendy Nicholson boosted her rating on Coty (ticker: COTY) to Buy from Neutral, and more than doubled her price target to $10, from $4.50. She acknowledges that the shares have moved up sharply from their lows in the spring, but argues that the company’s recent earnings report shows that the Coty can continue to climb, especially under new leadership.
The better-than-expected results, along with the strategic vision of the company’s new CEO, who joined in September, have helped the stock, and Nicholson is upbeat that markets are waking up to Coty’s potential. She writes that rather than focusing on the shares’ price-to-earnings ratio, it makes more sense to value Coty on total enterprise value to last fiscal year sales, and on this metric, Coty looks attractive compared to peers.
With the shares down more than 50% in 2020, skeptics might note that the factors that weighed on Coty—including high debt, a spotty track record, and the potential for lower margins as the company invests in its business—are still on investors’ minds. The shares are the 14th worst performer in the S&P 500 index as of Wednesday’s close, including a 37% surge in the past three months.
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Nicholson thinks the recent rally can continue. “Coty has the potential to pick a lot of low-hanging fruit in terms of accelerating growth, improving margins, and deleveraging its balance sheet.”
Her $10 price target reflects the potential for Coty’s outlook to improve if people feel more comfortable going out once a vaccine is available, as well as the ability of the company’s self-help initiatives and its efforts to expand in key international markets like China to play out successfully.
Coty stock is up 12.7% to $5.76 in Thursday morning trading. Nicholson isn’t the only analyst who is getting more bullish on the shares.
Write to Teresa Rivas at [email protected]
