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Avon (AVP) Rallies 42% in 3 Months: What's Aiding the Stock?

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Avon Products, Inc. (AVP - Free Report) is gaining momentum on the back of its ‘Open Up Avon’ strategy. This strategy focuses on reviving the company’s direct selling business model, renovating the brand, enhancing e-commerce and other capabilities to aid a performance-driven transformation. Backed by the aforementioned initiative, the company also remains committed to attain its long-term financial targets for 2021.

In the past three months, shares of this Zacks Rank #1 (Strong Buy) company have charted a solid trajectory. The stock has gained 42.1% compared with the industry’s 12.1% rally. Furthermore, Avon has an expected long-term earnings growth rate of 7.5%. You can see the complete list of today’s Zacks #1 Rank stocks here.

Let’s Have a Close Look

As part of the ‘Open Up Avon’ initiative, Avon expects to improve operating efficiency, slash inventory levels and reduce portfolio complexity by certain restructuring efforts including 25% decrease in Stock Keeping Units (SKUs), 15% reduction in inventory levels and 10% job cuts. These jobs cuts are estimated to fetch Avon annualized pre-tax savings of nearly $97 million by 2019 end. All these efforts are likely to help the company simplify operations and generate higher cost savings. Impressively, Avon accomplished cost savings of roughly $40 million in 2018 driven by this strategy.

With regard to Avon’s financial targets for 2021, the company intends to generate total cost-savings of $400 million by expanding manufacturing and distribution, outsourcing efficiencies, zero-based redesigning of back office functions, reducing certain facilities and managing revenue, interest and tax. In addition, management expects to invest roughly $300 million toward commercial, digital & IT infrastructure also targets achieving low-single digits revenue growth and low double-digits margin expansion by 2021.

In the fast-growing e-commerce space, Avon is capitalizing on the growth opportunities, making this platform a major growth driver. Furthermore, it remains committed toward improving digital tools and e-commerce channel to boost sales and Representative experience. The company also created dedicated e-commerce business units in all key markets, which helped it to steadily increase sales through this channel. Management targets doubling e-commerce sales in 2019.

Furthermore, Avon delivered solid earnings in first-quarter 2019, primarily driven by synergies from the ‘Open Up Avon’ strategy and expansion in adjusted operating margin. Results also reflected significant gains from improvement in price/mix and average orders. Notably, a favorable price/mix across all segments aided constant-currency revenue growth in three of the company’s four geographical segments. The improved price/mix and average orders were driven by the company’s constant focus on revenue growth management including lesser discounts, and more targeted and effective incentives, with little promotions.

3 Other Key Picks in the Same Space

The Estee Lauder Companies Inc. (EL - Free Report) delivered positive earnings surprise in each of the trailing four quarters, the average being 14.2%. The company carries a Zacks Rank #2 (Buy).

Helen of Troy Limited (HELE - Free Report) is also a Zacks Rank #2 stock, which delivered average positive earnings surprise of 15.9% in the last four quarters.

Medifast, Inc. (MED - Free Report) delivered average positive earnings surprise of 9.1% in the last four quarters. The company carries a Zacks Rank of 2.

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