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Avon Reaches Target, Downgraded
Avon Products, Inc.’s (AVP - Analyst Report) CEO Andrea Jung has transformed the company over the last eight years. It has grown aggressively in the Beauty products category, especially overseas in developing markets.
The management instilled financial discipline in the company through the multi-year supply chain cost reduction program along with the Product Line Simplification (PLS) and Strategic Sourcing Initiatives (SSI). The company’s strong second-quarter results drove the stock to our price target; as a result, the rating has been lowered to a Hold.
While the mature core North American market has been weak, Avon has a large exposure to the economies in Latin America that are prone to hyperinflation and currency devaluations. Japan also continues to be challenging. Moreover, Higher advertising, restructuring, and incentive expenditures along with the aggressive share repurchase program are increasing Avon’s debt position.
Avon Products stock has traded in a P/E range of 14 to 31 over the last five years. Avon is an above-average growth company among its peers, but there are inherent risks associated with the direct sales business model and the dependence on developing markets for growth. The costs associated with SSI and PLS initiatives are above expectations. The target price of $47.25 is based on a 23 P/E on trailing 12-month earnings.
Read the full analyst report on AVP
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| Market Summary | Jul 31, 2010 13:09 pm ET |
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