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Avon Upgraded to Strong Buy

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On Mar 19, Zacks Investment Research upgraded Avon Products Inc. (AVP - Free Report) to a Zacks Rank #1 (Strong Buy).

Why the Upgrade?

Avonhas been witnessing rising earnings estimates on the back of better-than-expected fourth-quarter 2012 results. For the first time the global beauty company’s earnings per share surpassed the Zacks Consensus Estimate after reporting lower-than-expected earnings in 6 consecutive quarters. Moreover, we believe that the company’s strategic move toward improving the health of the balance sheet through refinancing activities helped induce an upward movement in the estimates.

On Feb 12, Avon posted fourth-quarter adjusted earnings of 37 cents per share, significantly beating the Zacks Consensus Estimate of 27 cents. The company’s total revenue of $2,999.1 million for the quarter also beat the Zacks Consensus Estimate of $2,996.0 million.

Of late, Avon has been encountering challenges on various fronts including declining top and bottom lines and highly-leveraged balance sheet. In Nov 2012, Avon outlined some strategic measures focused on accelerating the top-line growth, trimming down costs and improving working capital. Management is in the process of easing business issues and directing the company toward the growth trajectory, while reviving its competitive position among peers.

As part of its strategy, Avon slashed its quarterly dividend by 6 cents to 23 cents per share and has set a target of bringing down costs by $400 million through 2015. We believe that the company’s turnaround strategies are paying off, which is evident from its recently released fourth-quarter 2012 operating results. Moreover, Avon recently culminated its $2.5 billion worth of refinancing activities, which is expected to provide financial flexibility to support the company’s turnaround strategies.

The Zacks Consensus Estimate for fiscal 2013 increased 10.9% to $1.02 per share as most of the estimates were revised higher over the last 60 days. Moreover, for fiscal 2013, the estimates were revised higher over the same time frame, lifting the Zacks Consensus Estimate by 19.1% to $1.31 per share.

Other Stocks to Consider

Besides Avon, other stocks in the soaps-cosmetics industry that are currently performing well include International Flavors & Fragrances Inc. (IFF - Free Report) , The Est (EL - Free Report) and Nu Skin Enterprises Inc. (NUS - Free Report) . All these companies carry a Zacks Rank #2 (Buy).

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